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on Network Economics |
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Issue of 2018‒01‒15
eight papers chosen by Pedro CL Souza Pontifícia Universidade Católica do Rio de Janeiro |
| By: | Áureo de Paula (Institute for Fiscal Studies and University College London); Seth Richards-Shubik (Institute for Fiscal Studies); Elie Tamer (Institute for Fiscal Studies and Harvard University) |
| Abstract: | This paper provides a framework for identifying preferences in a large network where links are pairwise stable. Network formation models present difficulties for identifi cation, especially when links can be interdependent: e.g., when indirect connections matter. We show how one can use the observed proportions of various local network structures to learn about the underlying preference parameters. The key assumption for our approach restricts individuals to have bounded degree in equilibrium, implying a finite number of payoff-relevant local structures. Our main result provides necessary conditions for parameters to belong to the identifi ed set. We then develop a quadratic programming algorithm that can be used to construct this set. With further restrictions on preferences, we show that our conditions are also sufficient for pairwise stability and therefore characterize the identifi ed set precisely. Overall, the use of both the economic model along with pairwise stability allows us to obtain effective dimension reduction. |
| Date: | 2017–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:35/17&r=net |
| By: | Ozdagli, Ali K. (Federal Reserve Bank of Boston); Weber, Michael (University of Chicago) |
| Abstract: | Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production networks might be an important mechanism for transmitting monetary policy to the real economy. |
| Keywords: | input-output linkages; spillover effects; asset prices; high frequency identification |
| JEL: | E12 E31 E44 E52 G12 G14 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:17-15&r=net |
| By: | Elisa Letizia; Fabrizio Lillo |
| Abstract: | Understanding the structure of interactions between corporate firms is critical to identify risk concentration and the possible pathways of propagation of financial distress. In this paper we consider the in- teraction due to payments and, by investigating a large proprietary dataset of Italian firms, we characterize the topological properties of the payment network. We then focus on the relation between the net- work of payments and the risk of firms. We show the existence of an homophily of risk, i.e. the tendency of firms with similar risk pro- file to be statistically more connected among themselves. This effect is observed both when considering pairs of firms and when consider- ing communities or hierarchies identified in the network. By applying machine learning techniques, we leverage this knowledge to show that network properties of a node can be used to predict the missing rating of a firm. Our results suggest that risk assessment should take quan- titatively into account also the network of interactions among firms. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.07677&r=net |
| By: | Büchel, Konstantin (University of Bern and CRED); Ehrlich, Maximilian v. (‡University of Bern, CAGE, CRED, and CESifo) |
| Abstract: | Social interactions are considered pivotal to agglomeration economies. We explore a unique dataset on mobile phone calls to examine how distance and population density shape the structure of social interactions. Exploiting an exogenous change in travel times, we find that distance is highly detrimental to interpersonal exchange. We show that, despite distance-related costs, urban residents do not benefit from larger networks when spatial sorting is accounted for. Higher density rather generates a more efficient network in terms of matching and clustering. These differences in network structure capitalize into land prices, corroborating the hypothesis that agglomeration economies operate via network efficiency.Keywords: Economic Geography; Agglomeration Economies; Social Interactions; Network Analysis; Spatial Sorting JEL Classification: R10; R23; D83; D85; Z13.creation-date: 2018 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:356&r=net |
| By: | Philip Sauré (Swiss National Bank); Andrei Levchenko (University of Michigan); Raphael Auer (Bank for International Settlements) |
| Abstract: | We document that observed international input-output linkages contribute substantially to synchronizing producer price inflation (PPI) across countries. Using a multi-country, industry- level dataset that combines information on PPI and exchange rates with international and domestic input-output linkages, we recover the underlying cost shocks that are propagated internationally via the global input-output network, thus generating the observed dynamics of PPI. We then compare the extent to which common global factors account for the variation in actual PPI and in the underlying cost shocks. Our main finding is that across a range of econometric tests, input-output linkages account for half of the global component of PPI inflation. We report three additional findings: (i) the results are similar when allowing for imperfect cost pass-through and demand complementarities; (ii) PPI synchronization across countries is driven primarily by common sectoral shocks and input-output linkages amplify co-movement primarily by propagating sectoral shocks; and (iii) the observed pattern of in- ternational input use preserves fat-tailed idiosyncratic shocks and thus leads to a fat-tailed distribution of inflation rates, i.e., periods of disinflation and high inflation. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1208&r=net |
| By: | Vincent Boucher |
| Abstract: | I present a behavioural model of network formation with positive network externalities in which individuals have preferences for being part of a clique. The behavioural model leads to an associated supermodular (Topkis, 1979) normalform game. I show that the behavioural model converges to the greatest Nash equilibrium of the associated normal-form game. I propose an approximate Bayesian computation (ABC) framework, using original summary statistics, to make inferences about individuals' preferences, and provide an illustration using data on high school friendships. |
| Keywords: | Network formation, Supermodular Games, Approximate Bayesian Computation |
| JEL: | D85 C11 C15 C72 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:crrecr:1710&r=net |
| By: | Hyuk-Soo Kwon (Institute for Fiscal Studies); Jihong Lee (Institute for Fiscal Studies); Sokbae Lee (Institute for Fiscal Studies and Columbia University and IFS); Ryungha Oh (Institute for Fiscal Studies) |
| Abstract: | This paper examines the trends in geographic localization of knowledge spillovers via patent citations, considering US patents from the period of 1976-2015. Despite accelerating globalization and widespread perception of the "death of distance," our multi-cohort "matched-sample" study reveals signi cant and growing localization effects of knowledge spillovers at both intra- and international levels after the 1980s. We also develop a novel network index based on the notion of "farness," which an instrumental variable estimation shows to be a signifi cant and sizable determinant of the observed trends at the state-sector level. |
| Keywords: | Innovation, knowledge spillovers, patent citation, agglomeration, network index, farness |
| JEL: | C36 C81 O33 O34 O51 |
| Date: | 2017–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:55/17&r=net |
| By: | Bredtmann, Julia (RWI); Nowotny, Klaus (University of Salzburg); Otten, Sebastian (RWI) |
| Abstract: | This paper analyzes the interaction between migrant networks and linguistic distance in the location choice of migrants to the EU at the regional level. We test the hypothesis that networks and the ability to communicate in the host country language, proxied by linguistic distance, are substitutes in the location decision. Based on individual level data from a special evaluation of the European Labour Force Survey (EU-LFS) and a random utility maximization framework, we find that networks have a positive effect on the location decisions while the effect of linguistic distance is negative. We also find a strong positive interaction effect between the two factors: networks are more important the larger the linguistic distance between the home country and the host region, and the negative effect of linguistic distance is smaller the larger the network size. In several extensions and robustness checks, we show that this substitutable relationship is extremely robust. |
| Keywords: | location choice, ethnic networks, linguistic distance, EU migration, multilateral resistance |
| JEL: | F22 J61 R23 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11171&r=net |