Reconstructing and stress testing credit networks

Amanah Ramadiah, Fabio Caccioli and Daniel Fricke

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Financial networks are an important source of systemic risk, but often only partial network information is available. In this paper, we use data on bank-firm credit relationships in Japan and conduct a horse race between different network reconstruction methods in terms of their ability to reproduce the actual credit networks. We then compare the different reconstruction methods in terms of their implied systemic risk levels. In most instances we find that the observed credit network significantly displays the highest systemic risk level. Lastly, we explore different policies to improve the robustness of the system.

Keywords: network reconstruction; stress testing; systemic risk; bipartite credit network; aggregation level (search for similar items in EconPapers)
JEL-codes: G11 G20 G21 G28 G32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-04-29
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118938

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