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An Interbank Network Determined by the Real Economy

Wang, Tianxi (2021) An Interbank Network Determined by the Real Economy. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers. (Unpublished)

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Abstract

As a means of payment, bank liability circulates in a cycle. A fraction of one bank's liability naturally flows out to another, creating a network of interbank connections. We demonstrate how this network is determined by the production technologies, the resources distribution and the Input-Output network of the real economy. We find banks with a smaller outflow fraction see their funding costs less dependent on the interbank interest rate; the heterogeneity in banks' outflow fraction causes lending ine¢ ciency; and the identities of depositors and borrowers matter. These results will not arise if banks are modelled as intermediaries of loanable funds.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: circulation of bank liability, interbank network, outflow fraction, identities of depositors and borrowers
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 10 Mar 2021 16:20
Last Modified: 10 Mar 2021 16:20
URI: http://repository.essex.ac.uk/id/eprint/30021

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