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Optimal primary dealer selection in financial networks

Author

Listed:
  • Chu, Rongtai
  • Fan, Zhongjie
  • Liu, Zehao
  • Tang, Dunzhe

Abstract

This paper establishes a financial network model with bank heterogeneity to analyze the optimal choice of primary dealers. We conclude that expansionary monetary policy should utilize small banks as primary dealers while contractionary monetary policy should utilize large banks as primary dealers.

Suggested Citation

  • Chu, Rongtai & Fan, Zhongjie & Liu, Zehao & Tang, Dunzhe, 2024. "Optimal primary dealer selection in financial networks," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523005062
    DOI: 10.1016/j.econlet.2023.111480
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    References listed on IDEAS

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    1. Matthieu Bouvard & Pierre Chaigneau & Adolfo De Motta, 2015. "Transparency in the Financial System: Rollover Risk and Crises," Journal of Finance, American Finance Association, vol. 70(4), pages 1805-1837, August.
    2. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
    3. Alexander Rodnyansky & Olivier M. Darmouni, 2017. "The Effects of Quantitative Easing on Bank Lending Behavior," The Review of Financial Studies, Society for Financial Studies, vol. 30(11), pages 3858-3887.
    4. Chakraborty, Indraneel & Goldstein, Itay & MacKinlay, Andrew, 2020. "Monetary stimulus and bank lending," Journal of Financial Economics, Elsevier, vol. 136(1), pages 189-218.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Primary dealer; Financial network; Heterogeneity;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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