Input-Output-Based Measures of Systemic Importance
- Quantitative Finance, Vol. 15, Issue 4, pp. 589-606
- Reseach Area:
- Systemic Risk Lab, Macro Finance
The analyses of intersectoral linkages of Leontief (1941) and Hirschman (1958) provide a natural way to study the transmission of risk among interconnected banks and to measure their systemic importance. In this paper we show how classic input-output analysis can be applied to banking and how to derive six indicators that capture different aspects of systemic importance, using a simple numerical example for illustration. We also discuss the relationship with other approaches, most notably network centrality measures, both formally and by means of a simulated network.
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