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2011
Are we forecasting:
Timing, Process , or Outcome?
Outline
Three components of models
Topology of interactions System dynamics Economic behavior
Payment systems
2.50E+15
~1939 tr
2.00E+15
1.50E+15
1.00E+15
5.00E+14
~194 tr
0.00E+00 Annual value (euros) Liquidity need
~120 tr ~5 tr
Age Age of of the the universe universe (hours) (days)
Bech, Preisig and Soramki (2008), FRBNY Economic Review, Vol. 14, No. 2.
Topology of interactions
Degree distribution
Total of ~8000 banks 66 banks comprise 75% of value 25 banks completely connected
Soramki, Bech, Beyeler, Glass and Arnold (2006), Physica A, Vol. 379, pp 317-333.
Complex dynamics
Central bank 4 Payment account
is debited
Payment system
Bi Bj
5 Payment account
is credited
Qi
Bi > 0
Di
2 Depositor account
is debited
Bank i
Liquidity Market
Dj
Qj > 0
Qj
Bank j
7 Queued payment,
if any, is released
Productive Agent
Productive Agent
Beyeler, Glass, Bech and Soramki (2007), Physica A, 384-2, pp 693-718.
Payments
Liquidity
When liquidity is high payments are submitted promptly and banks process payments independently of each other
Time
Payments
Instructions
Payments
Liquidity
Time
Reducing liquidity leads to episodes of congestion when queues build, and cascades of settlement activity when incoming payments allow banks to work off queues. Payment processing becomes coupled across the network
Frequency
Cascade Length
Payments
Instructions
Complex dynamics
Central bank 4 Payment account
is debited
Payment system
Bi Bj
5 Payment account
is credited
Qi
Bi > 0
Di
2 Depositor account
is debited
Bank i
Liquidity Market
Dj
Qj > 0
Qj
Bank j
7 Queued payment,
if any, is released
Productive Agent
Productive Agent
Beyeler, Glass, Bech and Soramki (2007), Physica A, 384-2, pp 693-718.
Economic behavior
Example: How much liquidity to post? Cost for a bank in a payment system depends on
Choice of liquidity and Delays of settlement
Banks liquidity choice depends on other banks liquidity choice We develop ABM
payoffs determined by a realistic settlement process reinforcement learning look at equilibrium
Data tsunami
Digital information is doubling every 1.2 years. Open data, data science, Regulatory response to recent financial crisis was to strengthen macro-prudential supervision with mandates for more regulatory data The challenge will be to understand and analyze the data
Analytics based policy, i.e. the application of computer technology, operational research, and statistics to solve regulatory problems
Network maps
Recent financial crisis brought to light the need to look at links between financial institutions Natural way to visualize the financial system Network thinking widespread by regulators Mapping of the financial system has only begun
Intelligence
Financial crisis are different and rare Technology, products and practices change Data is not clean, actions are not rational Hard to develop algorithms
Objectives
Provide a tool for exploration, analysis and visualization of regulatory financial data
Provide a extendible platform for custom functionality, and agent based and simulation models
Loki
NISAC at Sandia National Laboratories, 2004 Toolkit for network analysis and ABM
Scope
Research
Policy
Operations
Paradigm
Data validation
Visualization
demo
www.fna.fi
Thank you
Contact us kimmo.soramaki@fna.fi