liquidation equilibrium with seniority and hidden cdo the aim of our paper is to price credit derivatives written on a single name when this name is a bank indeed due to the special structure of the balance sheet of a bank and to the interconnections with other institutions of the financial system the standard pricing formulas do not apply and their use can imply severe mispricing the pricing of credit derivatives written on a single bank name requires a joint analysis of the risks of all banks directly or indirectly interconnected with the bank of interest each name cannot be priced in isolation but the banking system must be treated as a whole it is necessary to analyze the contagion of losses among banks especially the equilibrium of joint defaults and recovery rates at liquidation time we show the existence and uniqueness of such an equilibrium then the standard pricing formulas are modified by adding a premium to capture the contagion effects

swap rates and credit quality this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards with counterparties of different default risk the promised cash flows of a swap are discounted by a switching discount rate that at any given state and time is equal to the discount rate of the counterparty for whom the swap is currently out of the money that is a liability the impact of credit risk asymmetry and of netting is presented through both theory and numerical examples which include interest rate and currency swaps this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards this extends the valuation model for defaultable claims proposed by duffie and singleton 1994 to cases in which the two counterparties have asymmetric default risk the extension permits a reexamination of the impact of credit risk on swap rates while the valuation model applies to all forms of contingent claims in which both contracting parties are at risk to default such as forward contracts we focus on swaps for purposes of illustration for example consider a 5 year interest rate swap between a given party paying a floating rate such as the london inter bank offered rate libor and another counterparty paying a fixed rate replacing the given fixed rate counterparty with a lower quality counterparty whose bond yields are 100 basis points higher increases the swap rate by roughly 1 basis point using our model and typical parameters for libor rate processes this credit impact on swap rates is approximately linear within the range of normally encountered credit quality for a 5 year currency swap given a foreign exchange rate with 15 percent volatility our model shows the impact of credit risk asymmetry on the market swap rate to be roughly 10 fold greater than that for interest rate swaps that is approximately 10 basis points in swap rate per 100 basis points in bond yield credit spread the main goal of this article is to provide a simple and theoretically consistent model allowing such computations

food versus fuel an updated and expanded evidence abstract this paper replicates the study of zhang et al 2010 food versus fuel what do prices tell us energy policy 38 pp 445 451 we confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between march 1989 and july 2008 in addition we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset 3 vs 1 market 26 vs 8 commodities analysis up till 2017 vs 2008 weekly vs monthly data frequency focusing on the biofuel markets of brazil the eu and the usa in the three separate periods before during and after the food crisis of 2007 and 2008 we show that studying the time variation of the relationships plays an essential role in their proper understanding our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises in agreement with the original study we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages

can the us shale revolution be duplicated in continental europe an economic analysis of european shale gas resources abstract over the past decade the rapid increase in shale gas and shale oil production in the united states has profoundly changed energy markets in north america and has led to a significant decrease in american natural gas prices the possible existence of large shale deposits in continental europe mainly in france denmark the netherlands and germany has fostered speculation on whether the u s shale revolution could be duplicated in europe however a number of uncertainties notably geological technological regulatory and relating to public acceptance make this possibility unclear we present a techno economic model of shale gas production amenable to direct estimation on historical production data to analyze the main determinants of the profitability of shale wells and plays we contribute an in depth analysis of an extensive production dataset covering 40 000 wells and accounting for nearly 90 of shale gas production in the six main plays of the continental united states from 2004 to 2014 we combine this analysis with a discussion of the main differences between the american and european contexts to calibrate our model and conduct monte carlo simulations this enables us to estimate the distribution of breakeven prices for shale gas extraction in continental europe we find a median gross breakeven price before taxes and royalties of 10 1 per mmbtu this would make extraction unprofitable in europe in the current natural gas price environment with

the impact of the global food crisis on self assessed food security the paper provides the first large scale survey based evidence on the impact of the global food crisis of 2007 08 using an indicator of self assessed food security from the gallup world poll for the sampled countries as a whole this subjective indicator of food security remained the same or even improved seemingly owing to a combination of strong economic growth and limited food inflation in some of the most populous countries particularly india however these favorable global trends mask divergent trends at the national and regional levels with a number of countries reporting substantial deterioration in food security the impacts of the global crisis therefore appear to be highly context specific

fracking and environmental in justice in a texas city abstract shale gas development sgd via horizontal drilling and fracking is touted for economic benefits and spurned for health and environmental impacts despite sgd s socioecological salience few peer reviewed empirical studies document the distribution of positive and negative effects the city of denton texas has 280 active gas wells and over a decade of sgd here we use an environmental justice framework to analyze the distribution of sgd s costs and benefits within denton using data on mineral property values from 2002 to 2013 and gas well locations we ask who owns denton s mineral rights i e the greatest financial beneficiaries and how does this ownership pattern relate to who lives near gas wells i e those who shoulder the nuisances and health impacts our results show that denton s mineral wealth is widely distributed around the u s residents own 1 of the total value extracted and the city government is a large financial beneficiary in addition to distributional inequities our analysis demonstrates that split estate doctrine legal deference to mineral owners and sgd s uniqueness in urban centers create disparities in municipal sgd decision making processes the environmental justice issues associated with fracking in denton also provide one possible explanation for residents november 2014 vote to ban hydraulic fracturing

an economic impact report of shale gas extraction in pennsylvania with stricter assumptions abstract during the onset of shale gas development a variety of economic impact studies were released through the gray literature without formal peer review in a review of six such impact reports kinnaman 2011 speculates about several major issues worth scrutiny arising with analysis using input output models his central critique focuses on the assumptions of how industry spending is represented and how leasing and royalty dollars are spent in this study we use detailed county records and results from a survey to directly address these assumptions and compare our results to the findings in an economic impact study of marcellus shale development in pennsylvania which kinnaman critiqued our results which are only about 52 of the prior study confirm his supposition that some ex ante studies use unrealistic assumptions which lead to gross overestimates of the impacts

monitoring global and national food price crises this paper develops calibrates and runs a new food price crisis monitoring framework the proposed framework has an integrated approach to capture global and national vulnerabilities and offers an alternative to existing food insecurity information systems which suffer from a lack of consensus on the definition of food crisis the framework successfully identifies the recent episodes of food price crises in 2008 2011 and 2012 this paper also recommends ways in which the framework could be refined to increase country coverage and provide better information on country level food inflation

employment impacts of upstream oil and gas investment in the united states abstract we use dynamic panel methods at the state level to understand how the increase in exploration and production of oil and natural gas since the mid 2000s has impacted employment we find robust statistical support for the hypothesis that changes in drilling do in fact have an economically meaningful and positive impact on employment the strongest impact is contemporaneous though months later in the year also experience statistically and economically meaningful growth once dynamic effects are accounted for we estimate that an additional rig count results in the creation of 31 jobs immediately and 315 jobs in the long run robustness checks suggest that these multipliers could be even bigger our results imply that the national impact of upstream investment remains small perhaps due to the sector s small size and inter state migration

a network model of financial system resilience abstract we examine the role of macroeconomic fluctuations asset market liquidity and network structure in determining contagion and aggregate losses in a stylized financial system systemic instability is explored in a financial network comprising three distinct but interconnected sets of agents domestic banks overseas banks and firms calibrating the model to advanced country banking sector data this preliminarily model generates broadly sensible aggregate loss distributions which are bimodal in nature we demonstrate how systemic crises may occur and analyse how our results are influenced by firesale externalities and the feedback effects from curtailed lending in the macroeconomy we also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices

micro level transmission of monetary policy shocks the trading book channel abstract we open the black box of the monetary policy transmission mechanism with a granular model that considers the balance sheet composition and network relationships of each economic agent though there are several well documented channels through which monetary policy operates we focus on the overlooked trading book channel which arises because of adjustments in the accounting value of trading book exposures on banks balance sheets that have to be marked to market when interest rates change variations in banks net worth due these adjustments are used as input to a network model that incorporates the financial and corporate sectors the framework permits us to determine the effects of interest rate changes on every bank and firm in the economy and any second round contagion effects in the short run we apply the model to a comprehensive database of brazilian banks and firms from 2015 to 2020 we find that interest rate shocks affect more strongly financial stability in periods of monetary policy tightening we also find notable asymmetric effects of positive and negative interest rate shocks in the brazilian economy with positive interest rate shocks affecting more financial stability finally our results also suggest a non linear relationship between interest rate changes and financial stability reinforcing the need to mitigate monetary policy shocks through interest rate smoothing and adequate communication and transparency to society

estimating the short run poverty impacts of the 2010 11 surge in food prices global food prices have increased substantially since mid 2010 as have prices in many developing countries in this study we assess the poverty impact of the price changes between june and december 2010 in twenty eight low and middle income countries this is done by gathering detailed information on individual households food production and consumption levels for thirty eight agricultural and food commodities to assess the impacts on household welfare this study estimates that this sudden food price surge increased the number of poor people globally but with considerably different impacts in different countries the heterogeneity of these impacts is partly related to the wide variation in the transmission of global prices to local prices and partly to differences in households patterns of production and consumption on balance the adverse welfare impact on net buyers outweighs the benefits to net sellers resulting in an increase in the number of poor and in the depth of poverty we estimate that the average poverty change was 1 1 percentage points in low income countries and 0 7 percentage points in middle income countries with a net increase of 44 million people falling below the 1 25 per day extreme poverty line

bilateral exposures and systemic solvency risk en utilisant une structure des etats financiers des banques qui tient compte de leurs expositions bilaterales en termes d actions et de prets on developpe un modele structurel de faillite ce modele permet de distinguer les facteurs exogenes et endogenes dont depend la faillite on prouve l existence et l unicite de l equilibre de liquidation on etudie les consequences des chocs exogenes sur le systeme bancaire et on mesure le phenomene de contagion on illustre l usage de cette approche en l appliquant au systeme bancaire francais

the economic impact of shale gas extraction a review of existing studies abstract recent advances in drilling technology have allowed for the profitable extraction of natural gas from deep underground shale rock formations several reports sponsored by the gas industry have estimated the economic effects of the shale gas extraction on incomes employment and tax revenues none of these reports has been published in an economics journal and therefore have not been subjected to the peer review process yet these reports may be influential to the formation of public policy this commentary provides written reviews of several studies purporting to estimate the economic impact of gas extraction from shale beds due to questionable assumptions the economic impacts estimated in these reports are very likely overstated

the effects of rising food prices on poverty in mexico we evaluate the impact of the rise in food prices during 2006 2008 on the poverty and extreme poverty rates in mexico we concentrate on the poor s consumption of staple foods and analyze the change in their consumption brought about by changed prices we also allow households receiving income from the farming and livestock sector to benefit from increases in prices of food products we find a modest increase in poverty using 2006 2007 prices however there is a daunting effect on the poor once the 2008 prices are taken into account after considering the positive effects of public policies announced in 2008 such as reduced taxes and tariffs on food products and greater subsidies to the extremely poor the poverty rate measured through consumption increases from 25 to 33 5 and the extreme poverty rate from 10 58 to 16 given the increase in food prices further analysis using the theory of optimal taxes suggests policies oriented towards relieving the food price pressure on the mexican poor should aim at lowering the prices of eggs vegetable oil milk and chicken

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

systemic risk in the netting system abstract in interbank clearing networks a bank experiencing sudden liquidity or solvency problems may prevent settlement of the claims of its direct creditors which may in turn jeopardize settlement of other institutions the paper presents an empirical assessment of the potential size of this domino effect in the italian netting system a participant s settlement failure is simulated and the impact on the rest of the system measured on average only about 4 percent of participants were large enough to trigger systemic crises less than 1 percent defaulted due to systemic reasons the average monetary loss was less than 3 percent of the daily flow of funds through the clearing system similar simulations by other authors for the u s system yielded a much larger impact of systemic risk we argue that the difference is mainly due to the much smaller volume of funds flowing through the italian system and to structural differences

an institutional theory of hydraulic fracturing policy the use of high volume horizontal hydraulic fracturing fracking has increased substantially over the past five years in the united states use of this drilling technology to extract natural gas from hitherto impermeable shale is expected to increase even more in coming decades two institutions integration contracts and well spacing requirements evolved to mitigate the common pool economic wastes associated with conventional oil and gas drilling u s regulators have applied these institutions to fracking however shale plays differ geologically from conventional plays and are subject to different extractive technologies we theorize that the point source pollution characteristics of conventional drilling allowed integration contracts and well space requirements to minimize local negative environmental externalities as an unintended byproduct of minimizing common pool economic wastes the non point source pollution characteristics of fracking however make these institutions insufficient to minimize negative environmental externalities associated with drilling in shale plays because the economic waste problem is different if policymakers understand the crucial differences between conventional oil and gas plays and shale plays and the drilling technologies applied to them they should be better equipped to craft fracking regulatory policies that internalize problematic externalities

how geographic distance and political ideology interact to influence public perception of unconventional oil natural gas development a growing area of research has addressed public perception of unconventional oil and natural gas development via hydraulic fracturing fracking we extend this research by examining how geographic proximity to such extraction interacts with political ideology to influence issue support regression analysis of data from a fall 2013 national telephone survey of united states residents reveals that as respondents geographic distance from areas experiencing significant development increases political ideology becomes more strongly associated with issue support with the liberal partisan divide widening our findings support construal level theory s central premise that people use more abstract considerations like political ideology the more geographically removed they are from an issue we discuss implications for studying public opinion of energy development as well as for risk communication

systemic influences on optimal equity credit investment we introduce an equity credit portfolio framework taking into account the structural interaction of market and credit risk along with their systemic dependencies we derive an explicit expression for the optimal investment strategy in stocks and credit default swaps cdss we exploit its representation structure and analyze the mechanisms driving the optimal investment decisions the transmission of market risk premia is the key mechanism through which systemic influences affect the optimal investment strategy we develop a novel calibration procedure and find that systemic dependencies are statistically significant when the model is fitted to historical time series of equity and cds data an empirical analysis with data of companies in the dow jones industrial average 30 reveals the critical role of systemic risk in portfolio monitoring this paper was accepted by noah gans stochastic models and simulation

measuring network systemic risk contributions a leave one out approach abstract the aim of this paper is to propose a new network measure of systemic risk contributions that combines the pair wise granger causality approach with the leave one out concept this measure is based on a conditional granger causality test and consists of measuring how far the proportion of statistically significant connections in the system breaks down when a given financial institution is excluded we analyse the performance of our measure of systemic risk by considering a sample of the largest banks worldwide over the 2003 2018 period we obtain three important results first we show that our measure is able to identify a large number of banks classified as global systemically important banks g sibs by the financial stability board fsb second we find that our measure is a robust and statistically significant early warning indicator of downside returns during the last financial crisis finally we investigate the potential determinants of our measure of systemic risk and find similar results to the existing literature in particular our empirical results suggest that the size and the business model of banks are significant drivers of systemic risk

economics of modern energy boomtowns do oil and gas shocks differ from shocks in the rest of the economy abstract the us shale boom has intensified interest in how the expanding oil and gas sector affects local economic performance research has produced mixed results and has not compared how energy shocks differ from equal sized shocks elsewhere in the economy what emerges is that the estimated impacts of energy development vary by region empirical methodology as well as the time horizon that is considered this paper captures these dimensions to present a more complete picture of energy boomtowns utilizing us county data we estimate the effects of changes in oil and gas extraction employment on total employment growth as well as growth by sector we compare this to the effects of equal sized shocks in the rest of the economy to assess whether energy booms are inherently different the analysis is performed separately for nonmetropolitan and metropolitan counties using instrumental variables we difference over 1 3 6 and 10 year time periods to account for county fixed effects and to assess responses across different time horizons the results show that in nonmetro counties energy sector multiplier effects on total county employment first increase up to 6 year horizons and then decline for 10 year horizons we also observe positive spillovers to the non traded goods sector while spillovers are small or negative for traded goods in metro counties there are no significant effects on total employment although positive spillovers are present in some sectors yet equal sized shocks in the rest of the economy produce more jobs on average than oil and gas shocks suggesting that policymakers should seek more diversified development

costs benefits and the malleability of public support for fracking abstract public opinion plays an important role in shaping the policy debate over hydraulic fracturing at both the state and national level however most americans report having little to no information about this controversial practice that has transformed the u s energy market employing an experiment embedded on a nationally representative survey we examine how citizens respond to arguments concerning the costs and benefits of fracking and incorporate them into their policy preferences arguments emphasizing the economic benefits of fracking bolster support for the technique however these gains are completely canceled if paired with a discussion of fracking s environmental costs additionally we find mixed evidence of partisan motivated reasoning in how this information is processed individuals whose partisan attachments and preexisting beliefs about global climate change conflict are particularly responsive to arguments about the benefits and costs of fracking our results have important implications for scholars and policymakers concerned with partisan polarization in public opinion toward energy and environmental policy

what is the minimal systemic risk in financial exposure networks abstract we quantify how much systemic risk can be eliminated in financial contract networks by rearranging their network topology by using mixed integer linear programming financial linkages are optimally organized whereas the overall economic conditions of banks such as capital buffers total interbank assets and liabilities and average risk weighted exposure remain unchanged we apply the new optimization procedure to 10 snapshots of the austrian interbank market where we focus on the largest 70 banks covering 71 of the market volume the optimization reduces systemic risk measured in debtrank by about 70 showing the huge potential that changing the network structure has on the mitigation of financial contagion existing capital levels would need to be scaled up by a factor of 3 3 to obtain similar levels of debtrank these findings underline the importance of macro prudential rules that focus on the structure of financial networks the new optimization procedure allows us to benchmark actual networks to networks with minimal systemic risk we find that simple topological measures like link density degree assortativity or clustering coefficient fail to explain the large differences in systemic risk between actual and optimal networks we find that if the most systemically relevant banks are tightly connected overall systemic risk is higher than if they are unconnected

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

income and employment effects of shale gas extraction windfalls evidence from the marcellus region abstract new technologies combining hydraulic fracturing and horizontal drilling in oil and gas extraction are creating a sudden expansion of production residents of places where deep underground oil and gas deposits are found want to know about the broader economic social and environmental impacts of these activities that generate windfall income for some residents we first review the literature on windfall spending patterns then using the marcellus region the earliest area to be tapped using the new techniques we estimate county level employment and income effects for robustness we employ two methods using a propensity score matching approach we find no effect of fracking on income or employment a panel fixed effect regression approach suggests statistically significant employment effects in six out of seven alternative specifications but significant income effects in only one out of seven specifications in short the income spillover effects in the marcellus region appear to be minimal meaning there s little incentive at the county level to incur current or potential future costs that may be associated with this activity we conclude with some ideas on how localities might employ policies that would allow natural gas extraction to move forward benefitting landowners while establishing some financial safeguards for the broader community

the regional economic impact of oil and gas extraction in texas abstract this paper empirically investigates the regional economic impact of oil and gas extraction in texas during the recent shale oil boom regressions with county level data over the period 2009 2014 support smaller multiplier effects on local employment and income than corresponding estimates drawn from popular input output based studies economic impacts were larger for extraction from gas wells than oil wells while the drilling phase generated comparable impacts estimates of economic impacts are greater in a dynamic spatial panel model that allows for spillover effects across local economies as well as over time

what drives local food prices evidence from the tanzanian maize market this study quantifies the relationship between tanzanian and external maize markets while also accounting for domestic influences it concludes that external influences on domestic prices originate from regional rather than global markets it also shows that compared to external factors domestic factors exert a greater influence on tanzanian maize markets further the mechanisms through which trade policies influence maize markets involve interactions with both external market shocks and domestic weather shocks overall it provides evidence that the intermittent imposition of export bans in tanzania has had adverse impacts on its maize markets and consequently on the development of its agrarian economy

systemic risk in financial systems we consider default by firms that are part of a single clearing mechanism the obligations of all firms within the system are determined simultaneously in a fashion consistent with the priority of debt claims and the limited liability of equity we first show via a fixed point argument that there always exists a clearing payment vector that clears the obligations of the members of the clearing system under mild regularity conditions this clearing vector is unique next we develop an algorithm that both clears the financial system in a computationally efficient fashion and provides information on the systemic risk faced by the individual system firms finally we produce qualitative comparative statics for financial systems these comparative statics imply that in contrast to single firm results even unsystematic nondissipative shocks to the system will lower the total value of the system and may lower the value of the equity of some of the individual system firms

the geopolitical impact of the shale revolution exploring consequences on energy prices and rentier states while the shale revolution was largely a us affair it affects the global energy system in this paper we look at the effects of this spectacular increase in natural gas and oil extraction capacity can have on the mix of primary energy sources on energy prices and through that on internal political stability of rentier states we use two exploratory simulation models to investigate the consequences of the combination of both complexity and uncertainty in relation to the global energy system and state stability our simulations show that shale developments could be seen as part of a long term hog cycle with a short term drop in oil prices if unconventional supply substitutes demand for oil these lower oil prices may lead to instability in rentier states neighbouring the eu especially when dependence on oil and gas income is high youth bulges are present or buffers like sovereign wealth funds are too limited to bridge the negative economic effects of temporary low oil prices

implications of higher global food prices for poverty in low income countries in many poor countries the recent increases in prices of staple foods raise the real incomes of those selling food many of whom are relatively poor while hurting net food consumers many of whom are also relatively poor the impacts on poverty will certainly be very diverse but the average impact on poverty depends upon the balance between these two effects and can only be determined by looking at real world data results using household data for ten observations on nine low income countries show that the short run impacts of higher staple food prices on poverty differ considerably by commodity and by country but that poverty increases are much more frequent and larger than poverty reductions the recent large increases in food prices appear likely to raise overall poverty in low income countries substantially

interbank lending and systemic risk systemic risk refers to the propagation of a bank s economic distress to other economic agents linked to that bank through financial transactions banking authorities often prevent systemic risk through an implicit insurance of interbank claims or by reducing interbank transactions and centralizing banks liquidity management this paper investigates whether the flexability afforded by decentralized bank interactions can be preserved while protecting the central banks from the necessity of conducting undesired rescue operations it develops a model in which decentralized interbank leading is motivated by peer monitoring in this context the paper derives the optimal prudential rules and in particular looks at the impact of interbank monitoring on the solvency and liquidity ratios of borrowing and lending banks last it provides conditions which a too big to fail policy is or is not justified and studies the possibility of propagation of a bank s liquidity shock throughout the financial system copyright 1996 by ohio state university press

cornucopia or curse reviewing the costs and benefits of shale gas hydraulic fracturing fracking this study assesses the overall technical economic environmental and social costs and benefits of the hydraulic fracturing fracking of natural gas drawn from a review of more than 100 studies looking at shale gas in the past 10 years most of them peer reviewed this article begins by briefly explaining the process of hydrofracking and summarizing recent market trends up until late 2013 then the study discusses a series of advantages and disadvantages to hydrofracking it notes that done properly shale gas development can enhance energy security and the availability of energy fuels lower natural gas prices offer a cleaner environmental footprint than some other fossil fuels and enable local economic development however done poorly production can be prone to accidents and leakage contribute to environmental degradation induce earthquakes and when externalities are accounted for produce more net economic losses than profits the study concludes that the pursuit and utilization of shale gas thus presents policymakers planners and investors with a series of pernicious tradeoffs and tough choices

failure and rescue in an interbank network this paper is concerned with systemic risk in an interbank market modelled as a directed graph of interbank obligations this builds on the modelling paradigm of eisenberg and noe eisenberg l noe th 2001 systemic risk in financial systems management sci 472 236 249 by introducing costs of default if loans have to be called in by a failing bank this immediately introduces novel and realistic effects we find that in general many different clearing vectors can arise among which there is a greatest clearing vector arrived at by letting banks fail in succession until only solvent banks remain such a collapse should be prevented if at all possible we then study situations in which consortia of banks may have the means and incentives to rescue failing banks this again departs from the conclusions of the earlier work of eisenberg and noe where in the absence of default losses there would be no incentive for solvent banks to rescue failing banks we conclude with some remarks about how a rescue consortium might be constructed this paper was accepted by wei xiong finance

the formation of a core periphery structure in heterogeneous financial networks recent empirical evidence suggests that nancial networks exhibit a core periphery network structure this paper aims at giving an economic explanation for the emergence of such a structure using network formation theory focusing on intermediation benets we nd that a core periphery network cannot be unilaterally stable when agents are homogeneous the best response dynamics converge to a unique unilaterally stable outcome ranging from an empty to denser networks as the costs of linking decrease a core periphery network structure can form endogenously however if we allow for heterogeneity among agents in size we show that our model can reproduce the observed core periphery structure in the dutch interbank market for reasonable parameter values

domestic and external sectoral portfolios network structure and balance sheet contagion abstract this paper uses a unique comprehensive database on french security assets and liabilities to study the dynamics of domestic and external sectoral portfolios their network structure and their role in the propagation of shocks we first show how the sharp deterioration of the net external portfolio position of france between 2008 and 2014 was driven by sectoral patterns such as the banking sector retrenchment and the increase in foreign liabilities of the public and corporate sectors but was mitigated by the expansion of domestic and foreign asset portfolios of insurance companies we also provide a network representation of the links between domestic sectors and the rest of the world and document their evolution between 2008 and 2014 second we put forward and estimate a model of balance sheet contagion through inter sectoral security linkages the estimation of the model through gmm shows that the financial sectors of the economy banking mutual fund and insurance sector are affected by balance sheet contagion