Institutional Affiliation: European Investment Bank and Paris School of Economics
Information about this author at RePEc
NBER Working Papers and Publications
|July 2017||Balance-Sheet Diversification in General Equilibrium: Identification and Network Effects|
with , , : w23572
The paper uses disaggregated data on asset holdings and liabilities to estimate a general equilibrium model where each institution determines the diversification and size of the asset and liability sides of its balance-sheet. The model endogenously generates two types of financial networks: (i) a network of institutions when two institutions share common asset or liability holdings or when an institution holds an asset that is the liability of another. In both cases demand/supply decisions by one institution affect the value of other institutions' holdings/liabilities, (ii) a network of financial instruments implied by the distribution of assets and liabilities within and across institutions. A change in the price of one asset induces change in demand/supply for all other assets, thus gene...