Financial Bridges and Network Communities

59 Pages Posted: 14 May 2018 Last revised: 27 Oct 2023

See all articles by Roberto Casarin

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics

Michele Costola

Ca' Foscari University of Venice

Erdem Yenerdag

Washington University in St. Louis - Department of Economics

Date Written: October 27, 2023

Abstract

Network data are widely used to study financial connectedness and monitor financial stability. This naturally calls for flexible models that account for network variability and significant changes in the structure due to major financial shocks. In this paper, we propose a new Weighted Stochastic Block Model with change points that allows for detecting modularity and structural breaks in temporal networks. To make the inference tractable in high dimensions, we propose to combine Monte Carlo Markov Chain and Variational Bayes methods. By examining the European financial system, we uncover a dynamic community structure and highlight the pivotal role of community bridges in shock propagation during the Global and European sovereign financial crises. Keywords: Stochastic Block Models, Financial Networks, Network Communities, Financial Crises, Systemic Risk

Keywords: Systemic Risk, Financial Institutions, Network Communities, Financial Crises

JEL Classification: G12, G29, C51

Suggested Citation

Casarin, Roberto and Costola, Michele and Yenerdag, Erdem, Financial Bridges and Network Communities (October 27, 2023). SAFE Working Paper No. 208, Available at SSRN: https://ssrn.com/abstract=3178053 or http://dx.doi.org/10.2139/ssrn.3178053

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics ( email )

San Giobbe 873/b
Venice, 30121
Italy
+39 030.298.91.49 (Phone)
+39 030.298.88.37 (Fax)

HOME PAGE: http://sites.google.com/view/robertocasarin

Michele Costola (Contact Author)

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

Erdem Yenerdag

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

HOME PAGE: http://www.erdemyenerdag.com

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
152
Abstract Views
1,451
Rank
345,057
PlumX Metrics