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Intermediaries’ substitutability and financial network resilience: a hyperstructure approach

Accominotti, Olivier, Lucena-Piquero, Delio and Ugolini, Stefano (2023) Intermediaries’ substitutability and financial network resilience: a hyperstructure approach. Journal of Economic Dynamics and Control, 153. ISSN 0165-1889

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Identification Number: 10.1016/j.jedc.2023.104700

Abstract

This article studies the impact of intermediaries’ disappearance on firms’ access to the sterling money market during the first globalization era of 1880-1914. We propose a new methodology to assess intermediaries’ substitutability in financial networks featuring higher-order structures (credit intermediation chains). We represent the financial network as a hyperstructure and each credit intermediation chain as a hyperedge. This approach allows us to assess how the failure of intermediaries affects network connectivity. We apply this methodology to a unique dataset documenting the network structure of the sterling money market in the year 1906. Our results reveal that the failure of individual money market actors could only cause limited damage to the network as intermediaries were highly substitutable. These findings suggest that an international financial network without highly systemic nodes can emerge even at a time of global economic integration.

Item Type: Article
Additional Information: © 2023 Elsevier
Divisions: Economic History
Subjects: Q Science > QA Mathematics
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D85 - Network Formation and Analysis: Theory
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System
F - International Economics > F3 - International Finance > F30 - General
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
Date Deposited: 01 Aug 2023 16:48
Last Modified: 19 May 2024 04:33
URI: http://eprints.lse.ac.uk/id/eprint/119896

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