Arbeitspapier
The Formation of a Core Periphery Structure in Heterogeneous Financial Networks
Recent empirical evidence suggests that financial 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 benefits, we find 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.
- Language
-
Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. 14-098/II
- Classification
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Wirtschaft
Network Formation and Analysis: Theory
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Transactional Relationships; Contracts and Reputation; Networks
- Subject
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financial networks
core periphery structure
network formation models
- Event
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Geistige Schöpfung
- (who)
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in 't Veld, Daan
van der Leij, Marco
Hommes, Cars
- Event
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Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
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Amsterdam and Rotterdam
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- in 't Veld, Daan
- van der Leij, Marco
- Hommes, Cars
- Tinbergen Institute
Time of origin
- 2014
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