CMSS 2014 Summer Workshop - Mikhail Anufriev
Channel: Centre for Mathematical Social Sciences
Date: 2014-12-15

Connecting the Dots: Econometric Methods for Uncovering Networks with an Application to the Australian Financial Institutions. Presented by Mikhail Anufriev at the Centre for Mathematical Social Sciences 2014 Summer Workshop.

Abstract:
This paper connects variance-covariance estimation methods, Gaussian graphical mod- els, principle component analysis and growing literature on economic and financial networks. We construct the network using the concept of partial correlations which captures direct linear dependence between any two entities conditional on dependence between all other entities and investigate the properties of this network. The method- ology is applied to construct the perceived network of the publicly traded Australian banks and their connections to the domestic financial sector, real economy and inter- national markets. We also investigate time evolution of the network. We find strong links between the big four Australian banks and the other sectors of the economy and determine how shocks to other sectors and international markets transmit to the Australian banking system.