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A functional perspective on financial networks

Edoardo Gaffeo and Massimo Molinari ()

No 181, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: 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 that determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective on 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.

Keywords: Money-Center Network; Functional Perspective; Interbank Distress (search for similar items in EconPapers)
JEL-codes: C63 D85 G21 (search for similar items in EconPapers)
Pages: 31
Date: 2017-09
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Related works:
Journal Article: A functional perspective on financial networks (2018) Downloads
Working Paper: A functional perspective to financial networks (2016) Downloads
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