Ramadiah, A;
Caccioli, F;
Fricke, D;
(2020)
Reconstructing and stress testing credit networks.
Journal of Economic Dynamics and Control
, 111
, Article 103817. 10.1016/j.jedc.2019.103817.
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Abstract
Financial networks are an important source of systemic risk, but often only partial network information is available. In this paper, we use data on bank-firm credit relationships in Japan and conduct a horse race between different network reconstruction methods in terms of their ability to reproduce the actual credit networks. We then compare the different reconstruction methods in terms of their implied levels of systemic risk based on a standard model of price-mediated contagion. We find that the observed credit network displays relatively high levels of systemic risk compared with most reconstruction methods. Lastly, we explore whether different policies can improve the robustness of the system.
| Type: | Article |
|---|---|
| Title: | Reconstructing and stress testing credit networks |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.jedc.2019.103817 |
| Publisher version: | https://doi.org/10.1016/j.jedc.2019.103817 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Network reconstruction, Stress testing, Systemic risk, Bipartite credit network, Aggregation level |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10089732 |
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