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A functional perspective to financial networks

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  • Edoardo Gaffeo

    ()

  • Massimo Molinari

    ()

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 the determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective to 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. Sec- ond, 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.

Suggested Citation

  • Edoardo Gaffeo & Massimo Molinari, 2016. "A functional perspective to financial networks," DEM Working Papers 2016/06, Department of Economics and Management.
  • Handle: RePEc:trn:utwprg:2016/06
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Networks; Functional Perspective; Money-Center Banks;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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