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Input-Output-based Measures of Systemic Importance

Aldasoro, Iñaki and Angeloni, Ignazio (2013): Input-Output-based Measures of Systemic Importance.

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Abstract

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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