A Research On Systemic Risk Based On Dynamic Network Models

When the financial system encouters some kinds of internal or external shocks,financial risks will be spread,infected and assembled.The functions of the whole financial system will be affected to a certain extent,the economic development will confront many problems,and the social welfare may suffer some losses.This type of risk is known as “systemic risk”.Since the subprime crisis,systemic risk of the financial system has been paid high attention in the globe.Following the pace of the reform of global regulatory rules,China has fully implemented “The Capital Management Measures for Commercial Banks” since January 1,2013,which is the Chinese version of Basel III.People’s Bank of Chinahas upgraded the existing dynamic adjustment mechanism of differential reserve funds and the management mechanism of agreeable loans to “The Macro-prudential Assessment System”(MPA)from 2016.Since 2017,China has formulated a series of important policies to address systemic risk in the financial system,raising the prevention of systemic risks to the level of “a strategic battle”.Although theprevention work of systemic risk in China has achieved a decisive victory in the new period,we still face a great deal of pressure to prevent and resolve major risks in the period of the14 th Five-year Plan.People’s Bank of ChinaThe network structure of China’s financial system was relatively simple at the beginning of reform and opening up.The People’s Bank of China was the core of the simple financial network,and the systemic risk evolution phenomenon of “too big to fail” is obvious.With the deepening of reform and opening up and the continuous and further development of the economic and financial system,the network structure of our financial system has become increasingly complex.“Too interconnected to fail” and “too big to fail” have become the focus of systemic risk prevention.When financial institutions have operational difficulties or go bankrupt,when there are major shocks in the treasury bond market,foreign exchange market,commodity market,stock market or real estate market,or when there aredrastically downward adjustment in important industries(or sectors)of the national economy,systemic risks may rise sharply.In 2021,“Heng Da” and other real estate companies faced serious “development dilemma”,bringing some new problems for our systemic risk prevention.Therefore,China’s systemic risk prevention in the new period should be based on the whole “economic and financial system”,and wen should payclose attention to the topological structure evolution information of theeconomic and financial risk network.Under the background of China’s systemic risk prevention in the new era,this paper systematically investigates the systemic risk effect of the structure evolution of our economic and financial risk network on the basis of the coordinated development of the financial sector and real economy.How to embed the real enterprisesinto our financial network to construct the economic and financial risk network? What is the dynamic evolution mechanism of China’s economic and financial risk network? Do the real enterprises have different characteristics or laws from financial institutions in the risk connectedness network? After controlling other influencing factors,will the changes of topological characteristics of China’s economic and financial risk network have an impact on the systemic risk of the financial system? What enlightenments does this special evolution of the economic and financial risk network have for the formulation of macro-prudential policies? What are the implications for the improvement of oursystemic risk prevention policy in the new era? Our dedp research on these problems is conducive to the continuous implementation and improvement of China’s “major risk” prevention policies and “precision bomb disposal” policies in the new era.There are eight chapters included in this paper.The first chapter is the introduction,which elaborates the research background,significance,content,methods and innovations of this article.The second chapter systematically summarizes relevant documents such as the definition,characteristics,evolving mechanism,measure methods prevention polices of systemic risk and the building methods,dynamic evolving rules and risk management of network models.The third chapter reinterprets the related issues of complex risk network,briefly analyzes the interaction mechanism between the complex risk network and systemic risk evolution,and investigaes the systemic risk information contained in the complex risk network.In chapter four,based on the random matrix theory,the construction of network model in the case of non-stationary correlation is investigated,and the Wishart “aggregation” method is extended to lay a foundation for the theoretical construction and empirical analysis of economic and financial risk riak network.In chapter five,based on the daily data of the constituents of CSI 300 index,the dynamic complex risk network of China’s economy and finance is constructed,the time-varying evolution mechanism is analyzed,the characteristic indexes of the dynamic network are extracted,and the dynamic evolution characteristics of this network are investigated by using empirical mode decomposition(EMD)framework and theprincipal component analysis(PCA).In chapter six,the measurement method of systemic risk spillover effect is constructed based on the EVT-Copula-MES method.The daily data of the constituent companies of CSI 300 index from 2008 to 2020 are used to measure the size of systemic risk spillover of Chinese enterprises or institutions.The grey correlation analysis method is used to empirically investigate the correlation between the risk correlation network structure and risk spillover level.Chapter seven empirically examines the impact of the evolution of China’s economic and financial risk network structure on systemic risk spillovers.Chapter eight summarizes the whole paper,discusses policy suggestions and looks forward to the direction of further research.The main conclusions drawn in this paper are as follows:(1)The literature on systemic risk,network model,macro-or micro-prudential regulation policy,double pillar framework and relevant problems was investigated,but the fact that the structure evolution of economic and financial risk networkis closely related to systemic risk evolution has not been attached great importance to.This brings some new problems for the measurement of systemic risk,the analysis of evolutionary causes and the formulation of prevention policies.(2)China’s “economic and financial risk connectedness network" plays an important role in the process of risk diffusion and aggregation.It has obvious characteristics of stratification and clustering,and its dynamic evolution mechanism should be explored based on complex network theory.In the new period,the prevention of systemic risk in China should not be limited to the financial system.We should pay attention to the whole economic and financial system,and the “systemic risk” associated with some large real enterprises can not be ignored.(3)Based on random matrix theory and Wishart method,we can not only solve the problem of correlation stationary modeling,but also solve the problem of network model construction in the case of correlation non-stationary.This provides a reference method for constructing economic and financial risk connectedness network based on multi-dimensional network association information and combining with big data financial analysis principle.The method based on EVT-Copula-MES not only considers the typical facts of the distribution of financial risk factors,but also makes good use of the left tail extreme values and the dependence information,so it can better solve the theoretical and practical problems of the measurement of systemic risk spillover effects.(4)The topological structure of China’s economic and financial risk connectedness network has changed greatly,which is also one of the important reasons for the evolution of China’s systemic risk.In the new period,the improvement of China’s systemic risk prevention policy should attach great importance to the evolution information of risk network structure and the risk evolution information of “systemically important enterprises” within the economic scope.The related network structure of each industry is different,and systemic risk prevention policies should be coordinated with industrial development policies.The innovation of this paper is mainly reflected in the following aspects:(1)On the basis of the “financial network” model,we integrate the real enterprises into the “risk connestedness network” and embed the network topology characteristics such as layers and clustering,so as to build the dynamic evolution mechanism of “theeconomic and financial risk connestedness networkmodel” and investigate the dynamic intertwined relationship between the economic and financial risk connectedness network and the evolution of systemic risk.These studies not only expand the relevant literature of financial network model,but also develop the relevant analysis of the evolution mechanism of systemic risk.(2)Based on financial institutions and entities return data,using the random matrix theory and Wishart method to investigate the correlation between network model building problem underthe non-stationary situation,and to build China’s“economic and financial risk connectedness network”.The dynamic evolution mechanism of this structureis investigated,and the impact of the dynamic evolution of this network on systemic risk is analyzedbased on the panel data model.The studies ontonly extend the dynamic recognition mechanism of“systemically important financial institution”,but also lay a solid foundation for the counter-cyclical macro-prudential policy “within the scope of the whole economy”.Our research also provides “analyzing methods”,“dimension reduction techniques” and “data source” for the effect measurement of the dynamic evolution of ourrisk connectedness network.(3)Combing the tail dependency modeling method,the mixed copula methods,bayesian updating technology with MES measuring method for the spillover effects in a unified framework,we build the systemic risk contrbuitonmeasurement method,and the attribution analysis is made on the evolution mechanism of systemic risk at industry level from the view of “network evolution”.These studies not only improve the measurement methods of systemic risk,but also provide a new perspective for the cause analysis of its evolution,and provide reference for the improvement of systemic risk policies in the new era.Due to the limited level of research and the complexity of the research issue itself,the research in this paper needs to be further studied in the following aspects:(1)We can integrate the dynamic modelbuilding of the economic-wide financial risk interconnected network and the measure of systemic risk into a unified framework.(2)The structural and evolving information of the economic-wide financial risk interconnected network can be applied to the policy formulation of systemic risk prevention.(3)In the future,we plan to investigate the aggregate methods and information integration questions based on big data.