【 The Digital Star Seminar Series No.28 】The Network Structure of Money Multiplier

Date: 4 November 2022 (Fri) 
Time: 9:00am - 10:30am (Hong Kong Time, UTC+8)
Platform: Tencent Meeting (ID 666-448-295)

Host: Prof. Miaojun Wang (School of Economics, Zhejiang University)

Presenter: Prof. Ye Li (University of Washington)

Abstract：

The dual role of deposits as financing instruments for banks and means of payment for the rest of the economy implies liquidity spillover effects of bank lending. After new loans are financed by deposits, the deposit holders' payments cause reserves and deposits to flow from the lending bank to the payees' banks. We model a linear-quadratic game of bank lending on a random graph of payment flows. Network topology determines the money multiplier that connects the liquidity in the banking system (reserves) and the creation of credit and deposits. We quantify the liquidity percolation in payment system using transaction-level data and structurally estimate the network effects. Network externalities distort the money-multiplier mechanism, reducing the level of aggregate credit supply by 9% on average and amplifying the volatility by 20%. A small subset of banks are critically positioned in the network and are systemically important as their shocks have a disproportionately large influence on aggregate credit supply.

Intro to Prof. Ye Li:

PhD in Finance and Economics from Columbia University and William W. Alberts Endowed Professor in Finance and Assistant Professor at University of Washington. Ye Li is also an advisor to the Bank of Canada in the area of digital currency, a Lamfalussy Research Fellow at the European Central Bank, an invited member of the Finance Theory Group and Macron Finance Society, and a research affiliate of CESifo in Germany. Ye Li has published papers on the top economics and finance journals, such as the American Economic Review, Review of Financial Studies, and Journal of Financial Economics, in the area of monetary economics, macroeconomy, and financial technologies. He presented his work at the leading academic conferences, institutions, and central banks in Asia, Europe, and the U.S.

Organization：

- The Chinese University of Hong Kong-Zhejiang University Joint Research Center for Digital Economy

- China Digital Economy Research Center of School of Economics, Zhejiang University

- Zhejiang University Digital Economy Innovation Research Team

Intro to The Digital Star Seminar Series：

The Digital Star Seminar Series is co-hosted by the China Digital Economy Research Center of School of Economics, Zhejiang University, and the Chinese University of Hong Kong-Zhejiang University Joint Research Center for Digital Economy. This series of seminars will study the development of the digital economy and China's economic transformation based on the practice of China's digital transformation. We will invite domestic and overseas scholars to share and discuss the latest research on the digital economy and the Chinese economy. We hope that this academic platform can become a paradise for the study of the digital economy. More importantly, it can generate insights that significantly impact the digital economy and Chinese economy, which will help promote digital transformation and high-quality economic development in Chinese society.