Input-Output-Based Measures of Systemic Importance
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The analyses of intersectoral linkages of Leontief (1941) and Hirschman (1958) provide a natural way to study the transmission of risk among interconnected banks and to measure their systemic importance. In this paper we show how classic input-output analysis can be applied to banking and how to derive six indicators that capture different aspects of systemic importance, using a simple numerical example for illustration. We also discuss the relationship with other approaches, most notably network centrality measures, both formally and by means of a simulated network.
Systemic Risk Lab
banks, input-output, systemic risk, too-interconnected-to-fail, networks, interbank markets
C67, G00, G01, G20
Link to Publication
- LIF-SAFE Working Papers