2015

Static and Dynamic Networks in Interbank Markets

Reprint No. 2015:19

Author(s): Ethan Cohen-Cole, Eleonora Patacchini and Yves ZenouYear: 2015 Title: Network Science Volume (No.): 3 (1) Pages: 98–123
Online article (restrictions may apply)


This paper proposes a model of network interactions in the interbank market. Our innovation is to model systemic risk in the interbank network as the propagation of incentives or strategic behavior rather than the propagation of losses after default. Transmission in our model is not based on default. Instead, we explain bank profitability based on competition incentives and the outcome of a strategic game. As competitors’ lending decisions change, banks adjust their own decisions as a result: generating a “transmission” of shocks through the system. We provide a unique equilibrium characterization of a static model, and embed this model into a full dynamic model of network formation. We also determine the key bank, which is the bank that is crucial for the stability of the financial network.


Reference:
Cohen-Cole, Ethan, Eleonora Patacchini and Yves Zenou (2015), "Static and Dynamic Networks in Interbank Markets". Network Science 3(1), 98–123.

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

Omslag 2017 Institutional Reform for Innovation and Entrepreneurship.jpg

The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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