Seminario 15/19: N. Allouch (U. London) – Policy reform in networks: the interbank liquidity game

This paper studies the interbank liquidity game where banks are located on a network and may access their direct neighbors’ liquidity holdings. We investigate patterns and directions of welfare-improving transfers in arbitrary networks. More specifically, we use a geometric approach to characterise two general cases – where the welfare improvement is accompanied by a Pareto improvement, and when it is not. In this regard, our spectral analysis of policy reform leads to a full characterisation of the welfare impact of taxation.