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Network efficiency and the banking system

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  • Nicola Giocoli

Abstract

Inspired by the Coasean “market versus firm” dichotomy, we offer a new definition of efficiency by applying the notions of network cost and network efficiency as developed in complex network theory. Network analysis is relevant for every system of interconnected exchanging agents. One such system is the banking sector. It is showed that the notions hereby presented may improve upon the results of Allen and Gale’s standard model of the interbank market, where banks exchange liquidity and where troubles in a region of the market may lead to systemic collapse. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Nicola Giocoli, 2014. "Network efficiency and the banking system," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 203-218, September.
    • Handle: RePEc:spr:inrvec:v:61:y:2014:i:3:p:203-218
    DOI: 10.1007/s12232-014-0212-x
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    References listed on IDEAS

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    1. Ricardo J. Caballero, 2010. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 85-102, Fall.
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    5. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
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    7. Crucitti, Paolo & Latora, Vito & Marchiori, Massimo & Rapisarda, Andrea, 2003. "Efficiency of scale-free networks: error and attack tolerance," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 320(C), pages 622-642.
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    Cited by:

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    More about this item

    Keywords

    Network theory; Efficiency; Banking system; Systemic risk; D23; D85; G01; G21;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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