XXV Edition

1-2 December 2016"

A functional perspective to financial networks

Molinari Massimo, Sapienza University of Rome
Gaffeo Edoardo, University of Trento

The financial sector is a critical component of any economic system, as it delivers key qualitative asset transformation services in terms of liquidity, ma- turity 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 insti- tutions 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 counterfac- tual welfare comparisons among different topological structures.


Keywords: Money-Center Network; Liquidity Shock; Interbank Distress

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