University of Chicago
Institutional Affiliation: University of Chicago
Information about this author at RePEc
NBER Working Papers and Publications
|August 2015||An Empirical Analysis of Funding Costs Spillovers in the EURO-zone with Application to Systemic Risk|
with Ali Hortaçsu, Jakub Kastl: w21462
We propose a framework for estimation of spillovers between funding costs of individual banks. The estimation proceeds in three steps: First, using data from liquidity auctions of the European Central Bank, we estimate the funding costs in a given week for each individual bank. In the second step, we apply the adaptive elastic net (a LASSO type estimator) to this panel to estimate the financial network. Finally, using the estimated network we propose new measures of the systemicness and vulnerability of each bank. Our measure of systemicness has quite a natural interpretation, since it can roughly be viewed as the total externality a bank would impose on the funding costs of all other banks in the system. We estimate that most of the banks have fairly weak links and, therefore, if one were...