nep-net New Economics Papers
on Network Economics
Issue of 2016‒12‒11
three papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Fictitious play in networks By Christian Ewerhart; Kremena Valkanova
  2. Banks Interconnectivity and Leverage By Barattieri, Alessandro; Moretti, Laura; Quadrini, Vincenzo
  3. Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network By Claudia M. Buch; Linda Goldberg

  1. By: Christian Ewerhart; Kremena Valkanova
    Abstract: This paper studies fictitious play in networks of noncooperative two-player games. We show that continuous-time fictitious play converges to Nash equilibrium provided that the overall game is zero-sum. Moreover, the rate of convergence is 1/T , regardless of the size of the network. In contrast, arbitrary n-player zero-sum games do not possess the fictitious-play property. As an extension, we consider networks in which each bilateral game is strategically zero-sum, a weighted potential game, or a two-by-two game. In those cases, convergence requires either a condition on bilateral payoffs or that the underlying network structure is acyclic. The results are shown to hold also for the discrete-time variant of fictitious play, which entails a generalization of Robinson's theorem to arbitrary zero-sum networks. Applications include security games, conflict networks, and decentralized wireless channel selection.
    Keywords: Fictitious play, networks, zero-sum games, conflicts, potential games, Miyasawa's theorem, Robinson's theorem
    JEL: C72 D83 D85
    Date: 2016–12
  2. By: Barattieri, Alessandro (Collegio Carlo Alberto and ESG UQAM); Moretti, Laura (Central Bank of Ireland); Quadrini, Vincenzo (University of Southern California)
    Abstract: In the period that preceded the 2008 crisis, US financial intermediaries have become more leveraged (measured as the ratio of assets over equity) and interconnected (measured as the share of liabilities held by other financial intermediaries). This upward trend in leverage and interconnectivity sharply reversed after the crisis. To understand the factors that could have caused this dynamic, we develop a model where banks make risky investments in the non-financial sector and sell part of their investments to other banks (diversification). The model predicts a positive correlation between leverage and interconnectivity which we explore empirically using balance sheet data for over 14,000 financial intermediaries in 32 OECD countries. We enrich the theoretical model by allowing for Bayesian learning about the likelihood of a bank crisis (aggregate risk) and show that the model can capture the dynamics of leverage and interconnectivity observed in the data.
    Keywords: Interconnectivity, Leverage
    JEL: G11 G21 E21
    Date: 2016–09
  3. By: Claudia M. Buch; Linda Goldberg
    Abstract: The development of macroprudential policy tools has been one of the most significant changes in banking regulation in recent years. In this multi-study initiative of the International Banking Research Network, researchers from fifteen central banks and two international organizations use micro-banking data in conjunction with a novel dataset of prudential instruments to study international spillovers of prudential policy changes and their effects on bank lending growth. The collective analysis has three main findings. First, the effects of prudential instruments sometimes spill over borders through bank lending. Second, international spillovers vary across prudential instruments and are heterogeneous across banks. Bank-specific factors like balance sheet conditions and business models drive the amplitude and direction of spillovers to lending growth rates. Third, the effects of international spillovers of prudential policy on loan growth rates have not been large on average. However, our results tend to underestimate the full effect by focusing on adjustment along the intensive margin and by analyzing a period in which relatively few countries implemented country-specific macroprudential policies.
    JEL: F34 G01 G21
    Date: 2016–12

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