Macroeconomics and Networks

Resumen

With the aim of measuring the extent to which main the macroeconomic and the financial sectors are exposed to shocks that may cause systemic failures, this paper presents a topological network analysis using cross-sector borrowing and lending. In particular, sectorial interconnectedness is explored using metrics of centrality and connectivity. The economy is configured into two networks, one at a macro level and a second one at a banking sector level. Given that the initial architecture of the network, the optimal allocations of funds are found through a multiagent general equilibrium model and an iterative procedure where the intervention of a Lender of Last Resort (LLR) avoids a collapse. The role of the LLR is mimicked by reconfiguring the whole network such that a more homogenous risk sharing improves the resilience of the overall system. In order to verify this, the network structure is shocked through the banking system and by using the strength of the links the simulation quantifies a domino-like effect throughtout the network.The findings show that, besides being useful to identify potential pitfalls in the interconnectedness of sectors, networks are convenient to test how reconfiguring the links would provide resilence to the overall system. In particular, a more symmetric and dense configuration in combination with lower centrality , renders a more resilient system and therefore milder effects on the macroeconomic variables.