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Random digraphs with given expected degree sequences: A model for economic networks

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  • Bargigli, Leonardo
  • Gallegati, Mauro

Abstract

Abstract Building upon the growing interest for complex network theory, the main ambition of this paper is to contribute to a more effective application of network theory to economic phenomena, and particularly to financial networks. We depart from recent contributions on credit networks in two respects. In the first place, we constrain diversification with the out- and in-degree distribution of nodes, by adopting a suitable extension of the expected degree model for random weighted digraphs. In the second place, we focus on real networks by using this extension as null model for statistical analysis. With the help of statistical inference, we provide a rigorous answer to the following question: do real networks obey our null model? Further, we show that this answer is tightly connected to the existence of clusters or modules, as defined by Newman and Girvan (2004), within networks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 78 (2011)
Issue (Month): 3 (May)
Pages: 396-411

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Handle: RePEc:eee:jeborg:v:78:y:2011:i:3:p:396-411

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Related research

Keywords: Diversification Complex networks Credit networks Expected degree model Modularity Community structure of networks;

References

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  1. Franklin Allen & Ana Babus & Elena Carletti, 2010. "Financial Connections and Systemic Risk," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
  2. Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
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  4. G. De Masi & Y. Fujiwara & M. Gallegati & B. Greenwald & J. E. Stiglitz, 2009. "An Analysis of the Japanese Credit Network," Papers 0901.2384, arXiv.org, revised Nov 2010.
  5. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1121-1141.
  6. Hyun Song Shin, 2006. "Risk and liquidity in a system context," BIS Working Papers 212, Bank for International Settlements.
  7. Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521674096.
  8. Stiglitz,Joseph & Greenwald,Bruce, 2003. "Towards a New Paradigm in Monetary Economics," Cambridge Books, Cambridge University Press, number 9780521008051.
  9. Iyetomi, Hiroshi & Ikeda, Yuichi & Aoyama, Hideaki & Fujiwara, Yoshi & Souma, Wataru, 2009. "Structure and Temporal Change of the Credit Network between Banks and Large Firms in Japan," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(7), pages 1-18.
  10. Kavonius, Ilja Kristian & Castrén, Olli, 2009. "Balance Sheet Interlinkages and Macro-Financial Risk Analysis in the Euro Area," Working Paper Series 1124, European Central Bank.
  11. Fujiwara, Yoshi & Aoyama, Hideaki & Ikeda, Yuichi & Iyetomi, Hiroshi & Souma, Wataru, 2009. "Structure and Temporal Change of Credit Network between Banks and Large Firms in Japan," Economics Discussion Papers 2009-1, Kiel Institute for the World Economy.
  12. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
  13. Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521857406.
  14. Yoshi Fujiwara & Hideaki Aoyama & Yuichi Ikeda & Hiroshi Iyetomi & Wataru Souma, 2009. "Structure and temporal change of the credit network between banks and large firms in Japan," Papers 0901.2377, arXiv.org, revised May 2009.
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Citations

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Cited by:
  1. Leonardo Bargigli & Giovanni di Iasio & Luigi Infante & Fabrizio Lillo & Federico Pierobon, 2013. "The multiplex structure of interbank networks," Papers 1311.4798, arXiv.org.
  2. Bargigli, Leonardo & Gallegati, Mauro, 2012. "Finding communities in credit networks," Economics Discussion Papers 2012-41, Kiel Institute for the World Economy.
  3. Giorgio Fagiolo & Tiziano Squartini & Diego Garlaschelli, 2011. "Null Models of Economic Networks: The Case of the World Trade Web," Papers 1112.2895, arXiv.org, revised Sep 2012.
  4. Leonardo Bargigli, 2013. "Statistical Equilibrium Models for Sparse Economic Networks," Working Papers - Economics wp2013_25.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  5. Bargigli, Leonardo & Gallegati, Mauro & Riccetti, Luca & Russo, Alberto, 2014. "Network analysis and calibration of the “leveraged network-based financial accelerator”," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 109-125.

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