A Functional Perspective to Financial Networks

27 Pages Posted: 5 May 2016

See all articles by Edoardo Gaffeo

Edoardo Gaffeo

University of Trento - Department of Economics and Management

Massimo Molinari

Bank of Italy

Date Written: May 5, 2016

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. Second, 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.

Keywords: Financial Networks; Functional Perspective; Money-Center Banks

JEL Classification: C63, D85, G21

Suggested Citation

Gaffeo, Edoardo and Molinari, Massimo, A Functional Perspective to Financial Networks (May 5, 2016). Available at SSRN: https://ssrn.com/abstract=2775565 or http://dx.doi.org/10.2139/ssrn.2775565

Edoardo Gaffeo (Contact Author)

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, Trento 38100
Italy

Massimo Molinari

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

HOME PAGE: http://https://sites.google.com/site/maxomolinari/Home

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