Assessing the role of interbank network structure in business and financial cycle analysis
Jean-Yves Gnabo () and
No 307, Working Paper Research from National Bank of Belgium
We develop a DSGE model incorporating a banking sector comprising 4 banks connected in a stylised network representing their interbank exposures. The micro-founded framework allows inter alia for endogenous bank defaults and bank capital requirements. In addition, we introduce a central bank who intervenes directly in the interbank market through liquidity injections. Model dynamics are driven by standard productivity as well as banking sector shocks. In our simulations, we incorporate four different interbank network structures: Complete, cyclical and two variations of the coreperiphery topology. Comparison of interbank market dynamics under the different topologies reveals a strong stabilising role played by the complete network while the remaining structures show a non-negligible shock propagation mechanism. Finally, we show that central bank interventions can counteract negative banking shocks with the effect depending again on the network structure.
Keywords: Interbank network; DSGE model; banking; liquidity injections (search for similar items in EconPapers)
JEL-codes: D85 E32 E44 E52 G21 (search for similar items in EconPapers)
Pages: 48 pages
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201610-307
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