Estimating Spillover Effects with Bilateral Outcomes

Edoardo Rainone

A chapter in The Econometrics of Networks, 2020, vol. 42, pp 293-314 from Emerald Group Publishing Limited

Abstract: This chapter is concerned with the estimation of spillover effects when outcomes arise as a consequence of bilateral interactions instead of from individual actions. In this type of environments, outcomes are generated on links instead of on nodes of a network, like bilateral prices in over-the-counter markets. The author proposes alink-based spatial autoregressive(SAR) model and discusses identification conditions and a two step least square estimation procedure. The author shows analytically that using a standardnode-based SAR, which models nodes instead of links’ outcomes, produces misleading results when the data generating process is link-based. The methodology is illustrated using Monte Carlo experiments and real data from an interbank network.

Keywords: Spatial autoregressive models; identification; trading networks; money markets; financial stability; market microstructure; C21; D40; D85; E52; E40; G01; G21; F65 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-905320200000042014

DOI: 10.1108/S0731-905320200000042014

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