The formation of a core periphery structure in heterogeneous financial networks

Marco van der Leij, D. in 't Veld () and Cars Hommes
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D. in 't Veld: University of Amsterdam

No 16-07, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Recent empirical evidence suggests that financial networks exhibit a core-periphery network structure. This paper aims at giving an explanation for the emergence of such a structure using network formation theory. We propose a simple model of the overnight interbank lending market, in which banks compete for intermediation benfits. Focusing on the role of bank heterogeneity, we find that a core-periphery network cannot be unilaterally stable when banks are homogeneous. A core-periphery network structure can form endogenously, however, if we allow for heterogeneity among banks in size. Moreover, size heterogeneity may arise endogenously if payoffs feed back into bank size.

Date: 2016
New Economics Papers: this item is included in nep-net and nep-ure
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The formation of a core-periphery structure in heterogeneous financial networks (2020)
Working Paper: The Formation of a Core Periphery Structure in Heterogeneous Financial Networks (2019)
Working Paper: The formation of a core periphery structure in heterogeneous financial networks (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:16-07

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