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on Network Economics |
| By: | Matteo Chinazzi; Giorgio Fagiolo; Javier A. Reyes; Stefano Schiavo |
| Abstract: | As the recent crisis has forcefully suggested, understanding financial-market interconnectedness is of a paramount importance to explain systemic risk, stability and economic dynamics. In this paper, we address these issues along two related perspectives. First, we explore the statistical properties of the International Financial Network (IFN), defined as the weighted-directed multigraph where nodes are world countries and links represent debtor-creditor relationships in equities and short/long-run debt. We investigate whether the 2008 financial crisis has resulted in a significant change in the topological properties of the IFN. Our findings suggest that the crisis caused not only a reduction in the amount of securities traded, but also induced changes in the topology of the network and in the time evolution of its statistical properties. This has happened, however, without changing the disassortative, core-periphery structure of the IFN architecture. Second, we perform an econometric study to examine the ability of network-based measures to explain crosscountry differences in crisis intensity. We investigate whether the conclusion of previous studies showing that international connectedness is not a relevant predictor of crisis intensity may be reversed, once one explicitly accounts for the position of each country within the IFN. We show that higher interconnectedness reduces the severity of the crisis, as it allows adverse shocks to dissipate quicker. However, the systemic risk hypothesis cannot be completely dismissed and being central in the network, if the node is not a member of a rich club, puts the country in an adverse and risky position in times of crises. Finally, we find strong evidence of nonlinear effects, once the high degree of heterogeneity that characterizes the IFN is taken into account |
| Keywords: | financial networks, crisis, early warning systems |
| JEL: | E65 F30 G01 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpde:1202&r=net |
| By: | Gabrielle Demange (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | An intricate web of claims and obligations ties together the balance sheets of a wide variety of financial institutions. Under the occurrence of default, these interbank claims generate externalities across institutions and possibly disseminate defaults and bankruptcy. Building on a simple model for the joint determination of the repayments of interbank claims, this paper introduces a measure of the threat that a bank poses to the system. Such a measure, called threat index, may be helpful to determine how to inject cash into banks so as to increase debt reimbursement, or to assess the contributions of individual institutions to the risk in the system. Although the threat index and the default level of a bank both reflect some form of weakness and are affected by the whole liability network, the two indicators differ. As a result, injecting cash into the banks with the largest default level may not be optimal. |
| Keywords: | Contagion ; Systemic risk ; Financial linkages ; Bankruptcy |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00662513&r=net |
| By: | Andrey Sokolov; Rachel Webster; Andrew Melatos; Tien Kieu |
| Abstract: | High-value transactions between Australian banks are settled in the Reserve Bank Information and Transfer System (RITS) administered by the Reserve Bank of Australia. RITS operates on a real-time gross settlement (RTGS) basis and settles payments sourced from the SWIFT, the Austraclear, and the interbank transactions entered directly into RITS. In this paper, we analyse a dataset received from the Reserve Bank of Australia that includes all interbank transactions settled in RITS on an RTGS basis during five consecutive weekdays from 19 February 2007 inclusive, a week of relatively quiescent market conditions. The source, destination, and value of each transaction are known, which allows us to separate overnight loans from other transactions (nonloans) and reconstruct monetary flows between banks for every day in our sample. We conduct a novel analysis of the flow stability and examine the connection between loan and nonloan flows. Our aim is to understand the underlying causal mechanism connecting loan and nonloan flows. We find that the imbalances in the banks' exchange settlement funds resulting from the daily flows of nonloan transactions are almost exactly counterbalanced by the flows of overnight loans. The correlation coefficient between loan and nonloan imbalances is about -0.9 on most days. Some flows that persist over two consecutive days can be highly variable, but overall the flows are moderately stable in value. The nonloan network is characterised by a large fraction of persistent flows, whereas only half of the flows persist over any two consecutive days in the loan network. Moreover, we observe an unusual degree of coherence between persistent loan flow values on Tuesday and Wednesday. We probe static topological properties of the Australian interbank network and find them consistent with those observed in other countries. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1202.3182&r=net |
| By: | Fei Song (Ted Rogers School of Management, Ryerson University); C. Bram Cadsby (Department of Economics, University of Guelph); Yunyun Bi (Taiping Asset Management, Shanghai, China) |
| Abstract: | We examine the influence of social distance on levels of trust and reciprocity in China. Social distance, reflected in the indigenous concept of guanxi, is of central importance to Chinese culture. In Study 1, some participants participated in two financially salient trust games to measure behavior, one with an anonymous classmate and the other with an anonymous, demographically identical nonclassmate. Other participants, drawn from the same population, completed hypothetical surveys to gauge both hypothetical behavior and expectations of others. Social distance effects on actual and hypothetical behavior were statistically consistent. The results together corroborated the hypothesized negative relationship between trust and social distance. However, reciprocity was not responsive to social distance. Study 2 found that affect-based trust, but not cognition-based trust, played a mediating role in the relationship between social distance and interpersonal trust in a hypothetical scenario. We conclude that close guanxi ties in China engender affect-based trust, which is extended to shouren classmates. This is true despite the fact that no more cognition-based trust is placed nor reciprocity received or expected from classmates compared to demographically identical shengren nonclassmates. |
| Keywords: | Experiment; Affect-based Trust; China; Guano; Reciprocity; Trust; Social Distance |
| JEL: | C91 D03 D69 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2012-04.&r=net |
| By: | Barth, Anne-Kathrin; Heimeshoff, Ulrich |
| Abstract: | The increasing usage of mobile communication and the declining demand for fixed line telephony in Europe make the analysis of substitutional effects between fixed and mobile networks a key aspect for future telecommunication regulation. Using a unique dataset which contains information on all 27 European Union members from 2003 to 2009, we analyze substitutability between fixed and mobile telecommunications services in Europe by applying dynamic panel data techniques. We find strong empirical evidence for substitution from fixed to cellular networks throughout Europe. In addition, the article reveals resulting policy implications. -- |
| Keywords: | dynamic panel model,fixed-mobile substitution,telecommunication markets |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:42&r=net |
| By: | Ligon, Ethan (University of California, Berkeley. Dept of agricultural and resource economics); Schechter, Laura (University of Wisconsin, Madison) |
| Abstract: | What motivates people in rural villages to share? We first elicit a baseline level of sharing using a standard, anonymous dictator game. Then using variants of the dictator game that allow for either revealing the dictator's identity or allowing the dictator to choose the recipient, we attribute variationin sharing to three different motives. The first of these, directed altruism, is related to preferences, while the remaining two are incentive-related(sanctions and reciprocity). We observe high average levels of sharing in ourbaseline treatment, while variation across individuals depends importantlyon the incentive-related motives. Finally, variation in measured reciprocity within the experiment predicts observed 'real-world' gift-giving, while other motives measured in the experiment do not predict behavior outside the experiment. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1120&r=net |
| By: | David M Gomez (University of Oviedo); Guillermo J Ortega (Universidad Nacional de Quilmes); Benno Torgler (QUT); German Debat (Universidad Nacional de Quilmes) |
| Abstract: | This paper analyses co-movements in a wide group of commodity prices during the time period 1992-2010. Our methodological approach is based on the correlation matrix and the networks inside. Through this approach we are able to summarize global interaction and interdependence, capturing the existing heterogeneity in the degrees of synchronization between commodity prices. Our results produce two main findings: (a) we do not observe a persistent increase in the degree of co-movement of the commodity prices in our time sample, however from mid-2008 to the end of 2009 co-movements almost doubled when compared with the average correlation; (b) we observe three groups of commodities which have exhibited similar price dynamics (metals, oil and grains and oilseeds) and which have increased their degree of co-movement during the sampled period. These results suggest that speculation and uncertainty are drivers of the sharp slump in commodity prices synchronization. |
| Keywords: | commodity prices, co-movement, hierarchy and topology, networks, complex systems |
| JEL: | E37 C45 Q33 |
| Date: | 2011–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:274&r=net |
| By: | Olaizola Ortega, María Norma; Valenciano Llovera, Federico |
| Abstract: | We study the effects of institutional constraints on stability, efficiency and network formation. An exogenous "societal cover" consisting of a collection of possibly overlapping subsets covering the set of players specifies the social organization in different groups or "societies". It is assumed that a player may imitiate links only with players that belong to at least one society that she also belongs to, thus restricting the feasible strategies and networks. In this setting, we examine the impact of such societal constraints on stable/efficient architectures and on dynamics. We also study stability and stochastic stability in the presence of decay. |
| Keywords: | network, stability, dynamics, decay, stochastic stability |
| JEL: | A14 C72 D20 J00 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:201151&r=net |
| By: | David Matesanz Gomez; Guillermo J Ortega; Benno Torgler (QUT) |
| Abstract: | This paper analyses synchronization in business cycles across the European Union (EU) since 1989. We include both old and new European Union members and countries which are currently negotiating accession, as well as potential European Union members. Our methodological approach is based on the correlation matrix and the networks within, which allows us to summarize the individual interaction and co-movement, while also capturing the existing heterogeneity of connectivity within the European economic system. The results indicate that the synchronization of the old EU countries remained stable until the current financial crisis. Additionally, the synchronization of the new and potential members has approached to the old EU members although we observe the existence of different synchronization levels and dynamics in output growth in single countries as well as in groups of countries. Some countries have achieved an important degree of co-movement (such as the Baltic Republics, Hungary, Slovenia and Iceland), while others have experienced reduced synchronization, or even desynchronization (such as Romania, Bulgaria and even Greece and Ireland). |
| Keywords: | Business cycle synchronization, European Union countries, EU candidates, complex systems, network topology. |
| JEL: | E32 C45 O47 |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:277&r=net |