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Only Paul Could Go To Changchun

A Functional Perspective to Financial Networks

10/6/2016

 
Here.

The financial sector is a critical component of any economic system, as it delivers key qualitative asset transformation services in terms of liquidity, maturity and volume. Although these functions could in principle be carried out separately by specialized actors, in the end it is their systemic co-evolution the determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective to financial intermediation can be usefully employed to investigate the functioning of financial networks. We do this in two steps. First, we use previously unreleased data to show that focusing on the economic functions performed over time by the different institutions exchanging funds in an interbank market can be informative, even if the underlying topological structure of their relations remains constant. Second, a set of alternative artificial histories are generated and stress-tested by using real data as a calibration base, with the aim of performing counterfactual welfare comparisons among different topological structures.

Another quote:

The more developed the interbank market, the larger the insurance banks can buy against such a threat. A well-functioning interbank market does therefore improve the efficiency of the financial system as a whole since, ceteris paribus, it requires less bank-level liquidity hoarding


From:

Edoardo Gaffeo
University of Trento

Massimo Molinari
Sapienza University of Rome


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