nep-net New Economics Papers
on Network Economics
Issue of 2022‒01‒17
twelve papers chosen by
Alfonso Rosa García
Universidad de Murcia

  1. Networks of news and cross-sectional returns By Hu, Junjie; Härdle, Wolfgang
  2. Complexity and Productive Structure in Latin America: A Network Analysis of Trade Patterns By Calzada, BCO; Spinola, Danilo
  3. Who should get vaccinated? Individualized allocation of vaccines over SIR network By Toru Kitagawa; Guanyi Wang
  4. Endogenous Spatial Production Networks: Quantitative Implications for Trade & Productivity By Piyush Panigrahi
  5. Helping Struggling Students and Benefiting All: Peer Effects in Primary Education By Samuel Berlinski; Matias Busso; Michele Giannola
  6. The Transmission Mechanisms of International Business Cycles: Output Spillovers through Trade and Financial Linkages By Falk Bräuning; Viacheslav Sheremirov
  7. Macroscopic properties of buyer-seller networks in online marketplaces By Alberto Bracci; J\"orn Boehnke; Abeer ElBahrawy; Nicola Perra; Alexander Teytelboym; Andrea Baronchelli
  8. Taxes and Market Power: A Network Approach By Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz
  9. Revisiting the link between systemic risk and competition based on network theory and interbank exposures By Enrique Bátiz-Zuk; José Luis Lara Sánchez
  10. Notes on the Exponential Random Graph Model: a contribution to the critique of interdisciplinarity By Dini, Paolo
  11. Community detection and portfolio optimization By Longfeng Zhao; Chao Wang; Gang-Jin Wang; H. Eugene Stanley; Lin Chen
  12. Using Network-based Causal Inference to Detect the Sources of Contagion in the Currency Market By Katerina Rigana; Ernst-Jan Camiel Wit; Samantha Cook

  1. By: Hu, Junjie; Härdle, Wolfgang
    Abstract: We uncover networks from news articles to study cross-sectional stock returns. By analyzing a huge dataset of more than 1 million news articles collected from the internet, we construct time-varying directed networks of the S&P500 stocks. The well-defined directed news networks are formed based on a modest assumption about firm-specific news structure, and we propose an algorithm to tackle type-I errors in identifying the stock tickers. We find strong evidence for the comovement effect between the news-linked stocks returns and reversal effect from the lead stock return on the 1-day ahead follower stock return, after controlling for many known effects. Furthermore, a series of portfolio tests reveal that the news network attention proxy, network degree, provides a robust and significant cross-sectional predictability of the monthly stock returns. Among different types of news linkages, the linkages of within-sector stocks, large size lead firms, and lead firms with lower stock liquidity are crucial for cross-sectional predictability.
    Keywords: Networks,Textual News,Cross-Sectional Returns,Comovement,Network Degree
    JEL: G11 G41 C21
    Date: 2021
  2. By: Calzada, BCO; Spinola, Danilo
    Abstract: While plenty of existing literature focuses on Latin America’s trade relations with key partners, i.e. the US and China, and on its insertion into global value chains, intra-regional trade networks remain understudied. In this paper, we contribute to the understanding of the latter by looking at trade patterns in the region, focusing on how balanced and unbalanced trade occurs among Latin American countries and selected trade partners. We first develop an Index of Modern Balanced Trade (IMBT) that identifies balanced trade relations based on the share of complex goods that is exported and imported among two countries using data from the Observatory of Economic Complexity (Hausmann & Hidalgo, 2014). Based on the IMBT, we then build two types of networks (Balanced and Unbalanced Trade Networks) in three different years that represent specific moments in Latin American economic history. We find that, as expected, most Latin American countries’ relations with partners outside the region remain largely unbalanced. However, our results also show that the Balanced Trade Network within the region has steadily expanded.
    Keywords: Latin America; Trade Integration; Network Analysis; Economic Complexity.
    Date: 2022–01–10
  3. By: Toru Kitagawa (Institute for Fiscal Studies and University College London); Guanyi Wang (Institute for Fiscal Studies)
    Abstract: How to allocate vaccines over heterogeneous individuals is one of the important policy decisions in pandemic times. This paper develops a procedure to estimate an individualized vaccine allocation policy under limited supply, exploiting social network data containing individual demographic characteristics and health status. We model the spillover effects of vaccination based on a Heterogeneous-Interacted-SIR network model and estimate an individualized vaccine allocation policy by maximizing an estimated social welfare (public health) criterion incorporating these spillovers. While this optimization problem is generally an NP-hard integer optimization problem, we show that the SIR structure leads to a submodular objective function, and provide a computationally attractive greedy algorithm for approximating a solution that has a theoretical performance guarantee. Moreover, we characterise a finite sample welfare regret bound and examine how its uniform convergence rate depends on the complexity and riskiness of the social network. In the simulation, we illustrate the importance of considering spillovers by comparing our method with targeting without network information.
    Date: 2021–07–20
  4. By: Piyush Panigrahi (University of California, Berkeley)
    Abstract: Larger Indian firms selling inputs to other firms tend to have more customers, tend to be used more intensively by their customers, and tend to have larger customers. Motivated by these regularities, I propose a novel empirical model of trade featuring endogenous formation of input-output linkages between spatially distant firms. The empirical model consists of (a) a theoretical framework that accommodates first order features of firm-to-firm network data, (b) a maximum likelihood framework for structural estimation that is uninhibited by the scale of data, and (c) a procedure for counterfactual analysis that speaks to the effects of micro- and macro- shocks to the spatial network economy. In the model, firms with low production costs end up larger because they find more customers, are used more intensively by their customers and in turn their customers lower production costs and end up larger themselves. In the model, differences in production costs across firms arise not just from differences in productivity but also from ï¬ nding the most cost-effective suppliers of intermediate inputs. Firms with low production costs end up larger because they ï¬ nd more customers, are used more intensively by their customers and in turn their customers lower production costs and end up larger themselves. The model is estimated using novel micro-data on firm-to-firm sales between Indian firms. The estimated model implies that a 10% decline in inter-state border frictions in India leads to welfare gains ranging between 1% and 8% across districts. Moreover, over half of the variation in changes in firms’ sales to other firms can be explained by endogenous changes in the network structure.
    Keywords: Network formation, Production networks, Firm-to-firm networks, International trade, Economic geography, Spatial economics
    JEL: F11 F12 D24 C67 C68 L11 O11 O12 R12 R15
    Date: 2021–11
  5. By: Samuel Berlinski (Inter-American Development Bank and IZA); Matias Busso (Inter-American Development Bank); Michele Giannola (Università di Napoli Federico II, CSEF and the Institute for Fiscal Studies.)
    Abstract: We exploit the randomized evaluation of a remedying education intervention that improved the reading skills of low-performing third grade students in Colombia, to study whether providing educational support to low-achieving students affects the academic performance of their higher- achieving classmates. We find that the test scores of non-treated children in treatment schools increased by 0.108 of a standard deviation compared to similar children in control schools. We interpret the reduced-form effect on higher-achieving students as a spillover effect within treated schools. We then estimate a linear-in-means model of peer effects, finding that a one-standard-deviation increase in peers’ contemporaneous achievement increases individual test scores by 0.679 of a standard deviation. We rule out alternative explanations coming from a reduction in class size. We explore several mechanisms, including teachers’ effort, students’ misbehavior, and peer-to-peer interactions. Our findings show that policies aimed at improving the bottom of the achievement distribution have the potential to generate social-multiplier effects that benefit all.
    Keywords: peer effects; remedying education.
    JEL: D62 I21 I25 J01
    Date: 2022–01–03
  6. By: Falk Bräuning; Viacheslav Sheremirov
    Abstract: We study the transmission channels through which shocks affect the global economy and the cross-country comovement of real economic activity. For this purpose, we collect detailed data on international trade and financial linkages as well as domestic macro and financial variables for a large set of countries. We document significant international output comovement following U.S. monetary shocks, and find that openness to international trade matters more than financial openness in explaining cross-country spillovers. In particular, output in countries with a high share of exports and imports responds to U.S. monetary shocks significantly more than output in countries with a low share, whereas we do not find material heterogeneity depending on international investment positions or financial flows in the balance of payments. We further document strong network amplification associated with the patterns of bilateral trade flows, as indirect spillovers account for nearly half of the total effect. Studies that do not account for direct bilateral linkages between national economies — and the indirect linkages through the network they form – may thus present an incomplete view of international business cycles.
    Keywords: financial linkages; international spillovers; monetary shocks; trade networks
    JEL: E52 F42 F44 G15
    Date: 2021–10–01
  7. By: Alberto Bracci; J\"orn Boehnke; Abeer ElBahrawy; Nicola Perra; Alexander Teytelboym; Andrea Baronchelli
    Abstract: Online marketplaces are the main engines of legal and illegal e-commerce, yet the aggregate properties of buyer-seller networks behind them are poorly understood. We analyze two datasets containing 245M transactions (16B USD) that took place on online marketplaces between 2010 and 2021. The data cover 28 dark web marketplaces, i.e., unregulated markets whose main currency is Bitcoin, and 144 product markets of one regulated e-commerce platform. We show how transactions in online marketplaces exhibit strikingly similar patterns of aggregate behavior despite significant differences in language, lifetimes available products, regulation, oversight, and technology. We find remarkable regularities in the distributions of (i) transaction amounts, (ii) number of transactions, (iii) inter-event times, (iv) time between first and last transactions. We then show how buyer behavior is affected by the memory of past interactions, and draw on these observations to propose a model of network formation able to reproduce the main stylized facts of the data. Our findings have implications for understanding market power on online marketplaces as well as inter-marketplace competition.
    Date: 2021–12
  8. By: Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz
    Abstract: Suppliers of differentiated goods make simultaneous pricing decisions, which are strategically linked due to consumer preferences and the structure of production. Because of market power, the equilibrium is inefficient. We study how a policymaker should target a budget-balanced tax-and-subsidy policy to increase welfare. A key tool is a certain basis for the goods space, determined by the network of interactions among suppliers. It consists of eigenbundles -- orthogonal in the sense that a tax on any eigenbundle passes through only to its own price -- with pass-through coefficients determined by associated eigenvalues. Our basis permits a simple characterization of optimal interventions. For example, a planner maximizing consumer welfare should tax eigenbundles with low pass-through and subsidize ones with high pass-through. We interpret these results in terms of the network structure of the market.
    Date: 2021–12
  9. By: Enrique Bátiz-Zuk; José Luis Lara Sánchez
    Abstract: This paper examines the link between bank competition measures and risk indicators using quarterly interbank exposures data for all banks in Mexico during 2008Q1-2019Q1. The classical literature focuses on disentangling the link between competition and individual bank solvency risk. In this paper, we take one step forward in analyzing the relationship between competition and systemic risk. We use counterfactual bank-level contagion risk indicators as a proxy of systemic risk to assess their relationship with traditional competition measures. Our main finding indicates a negative relationship between the bank-level Lerner index and systemic risk. This means that an increase in competition is associated with an increase in systemic risk. Additionally, we find that the implementation of regulatory reform during the period studied does not affect this relationship.
    JEL: C23 D40 G21 G28 L14 L16 L22
    Date: 2021–12
  10. By: Dini, Paolo
    Abstract: A tutorial discussion is presented about the Exponential Random Graph Model (ERGM) of Social Network Analysis (SNA). The intended audience is post-graduate students and researchers in social science who are curious to understand better where quantitative models come from, for a more effective integration with qualitative methodologies. The discussion is traced back to Jaynes’s distinction between objective and subjective interpretations of probability, where the former emphasizes likelihood of outcomes based on frequency distributions, while the latter emphasizes our incomplete knowledge or uncertainty about the outcome. Although within information theory both views lead to the same functional form for information entropy, when applying these concepts to graph theory the paper shows that the subjective view leads to the ERGM, while the objective view yields a different functional form for the ‘graph entropy’. It is hoped that the critical perspective on interdisciplinarity developed throughout the paper lends credibility and insight to the conclusion that the subjective view of graph entropy is justified as an optimization principle for the most likely distribution of different graph metrics.
    JEL: C1
    Date: 2021–12–13
  11. By: Longfeng Zhao; Chao Wang; Gang-Jin Wang; H. Eugene Stanley; Lin Chen
    Abstract: Community detection methods can be used to explore the structure of complex systems. The well-known modular configurations in complex financial systems indicate the existence of community structures. Here we analyze the community properties of correlation-based networks in worldwide stock markets and use community information to construct portfolios. Portfolios constructed using community detection methods perform well. Our results can be used as new portfolio optimization and risk management tools.
    Date: 2021–12
  12. By: Katerina Rigana; Ernst-Jan Camiel Wit; Samantha Cook
    Abstract: Contagion is an extremely important topic in finance. Contagion is at the core of most major financial crises, in particular the 2008 financial crisis. Although various approaches to quantifying contagion have been proposed, many of them lack a causal interpretation. We will present a new measure for contagion among individual currencies within the Foreign exchange market and show how the paths of contagion work within the Forex using causal inference. This approach will allow us to pinpoint sources of contagion and to find which currencies offer good options for diversification and which are more susceptible to systemic risk, ultimately resulting in feedback on the level of global systemic risk.
    Date: 2021–12

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