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Estimating Spillover Effects with Bilateral Outcomes

ISBN: 978-1-83867-576-9, eISBN: 978-1-83867-575-2

Publication date: 19 October 2020

Abstract

This chapter is concerned with the estimation of spillover effects when outcomes arise as a consequence of bilateral interactions instead of from individual actions. In this type of environments, outcomes are generated on links instead of on nodes of a network, like bilateral prices in over-the-counter markets. The author proposes a link-based spatial autoregressive (SAR) model and discusses identification conditions and a two step least square estimation procedure. The author shows analytically that using a standard node-based SAR, which models nodes instead of links’ outcomes, produces misleading results when the data generating process is link-based. The methodology is illustrated using Monte Carlo experiments and real data from an interbank network.

Keywords

Acknowledgements

Acknowledgments

The author thanks, for their comments, Vincent Ang, Paolo Angelini, Ben Craig, Giuseppe Ferrero, Jacques Fournier, Simone Giansante, Lincoln H. Groves, Luigi Infante, Mikael Juselius, Péter Kondor, Fabrizio Mattesini, Filippo Natoli, Eleonora Patacchini, Dilyara Salakhova, Julia Schaumburg, Marco Taboga, Yves Zenou, as well as participants at the workshop The interbank market and the crisis held at the Bank of Italy in Rome, participants at the 13th BoF PSS Seminar, participants at the 7th Irving Fisher Committee Conference at the BIS in Basel, colleagues of the Bank of Italy at the Financial Stability Directorate, and, finally, participants at the Macro-prudential Research Network workshop at the ECB in Frankfurt. All errors are author’s own responsibility. The author is member/alternate of one of the user groups with access to TARGET2 data in accordance with Article 1(2) of Decision ECB/2010/9 of July 29, 2010 on access to and use of certain TARGET2 data. The Bank of Italy and the PSSC have checked the chapter against the rules for guaranteeing the confidentiality of transaction-level data imposed by the PSSC pursuant to Article 1(4) of the above mentioned issue. The views expressed in the chapter are solely those of the author’s and do not necessarily represent the views of the Eurosystem.

Citation

Rainone, E. (2020), "Estimating Spillover Effects with Bilateral Outcomes", de Paula, Á., Tamer, E. and Voia, M.-C. (Ed.) The Econometrics of Networks (Advances in Econometrics, Vol. 42), Emerald Publishing Limited, Leeds, pp. 293-314. https://doi.org/10.1108/S0731-905320200000042014

Publisher

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Emerald Publishing Limited