04 February 2014

A Dynamic Stochastic Network Model of the Unsecured Interbank Lending Market

This paper introduces a structural micro-founded dynamic stochastic network model for the unsecured interbank lending market. Banks are profit optimizing agents subject to random liquidity shocks and can engage in costly counterparty search to find suitable trading partners and peer monitoring to reduce counterparty risk uncertainty. The structural parameters are estimated by indirect inference
using appropriate network statistics of the Dutch interbank market.

The estimated model is shown to explain accurately important dynamic features of the interbank market network. In particular, monitoring of counterparty risk and directed search are shown to be key factors in the formation of interbank trading relationships that are associated with improved credit conditions. Finally, the model is used to filter the optimal search and monitoring expenditures in the network and to analyze optimal network responses to changes in the policy of the central bank.

by Francisco Blasques, Falk Bräuning, Iman van Lelyveld

Download (487kB)

Call for Proposals

Current call for proposal submission window is closed. Stay tuned as another opportunity will be posted soon.

Annual Report 2017

The SWIFT Institute Annual Report 2017 is now available.

Download

FAQ

The SWIFT Institute issues calls for research proposals on specific themes or topics on an on-going basis. Submissions are reviewed by the Advisory Council, and grants are awarded to support approved research proposals.
Proposals from prospective researchers must include a cover letter, CV, details of research experience, examples of published work, references, idea for research, methodology to be used, timeframe for completion, and expected output (e.g. working paper, presentation). Proposals should only be submitted in response to an issued Call for Proposal.
Once a sponsored research paper is ready to be published, the SWIFT Institute will publish it on its website as well as the academic journal repository SSRN. The SWIFT Institute will issue a press release on the paper and may even feature the newly published research in its quarterly newsletter. After the SWIFT Institute publishes the research, the research and its content belong to the researcher to publish, giving credit to the support given by the SWIFT Institute.

Submit your paper

If you have a paper that is of relevance to the financial industry and you would like it to be considered for publication on the SWIFT Institute website, please send us your request by using our Contact Form.

Contact Us