Domestic and External Sectoral Portfolios: Network Structure

and Balance-Sheet Effects Jonas Heipertz, Romain Rancièrey, Natacha Valla

Discussion

Vahagn Galstyan

Disclaimer

The views expressed in this paper are personal and do not represent the views of the Central Bank of Ireland or the eurosystem.

Structure

• Descriptive • the dynamics of domestic and external sectoral portfolios

• their network structure

• Econometric • the role of sectoral portfolios in the propagation of shocks, ie contagion.

International Portfolio Investments

80

90

100

110

120

130

140

2008 2009 2010 2011 2012 2013 2014 2015 2016

Assets Liabilities

Net Portfolio Equity – Debt Split

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

2008 2009 2010 2011 2012 2013 2014 2015 2016

Equity Debt

Net Portfolio Equity: Sectoral Breakdown

-25

-20

-15

-10

-5

0

5

10

15

20

2008 2009 2010 2011 2012 2013 2014 2015 2016

BANK GG OFC NF

Net Portfolio Debt: Sectoral Breakdown

-100

-80

-60

-40

-20

0

20

40

60

2008 2009 2010 2011 2012 2013 2014 2015 2016

CB BANK GG OFC NF

Description and Stylized Facts

• But what is behind OFC? Who are the counterparties?

• 11 stylized facts • 9 refer to the dynamics of domestic and external sectoral portfolios

• 2 refer to the network structure, ie cross-exposures of domestic sectors to each other and the ROW.

Leontief

• Sum of intermediate demand (Ax) and final demand (f) for the output of a given sector is equal to total output of that sector (x)

Ax + f = x

• A is a square matrix of input/output coefficients.

• A typical element of Ax product is a_ij*x_j that measures intermediate demand for good i by sector j. Thus a_ij is the quantity of good i that sector j requires to produce 1 unit of own good.

Questions Related to Contagion

• “a_ij” is restricted: for sector i, a_ijt = constant * share_ijt

• Eigenvalues of A

• Beta1 is also the coefficient on common return on foreign asset holdings • Could the findings in fact suggest that the external component is the driver of

domestic returns?

• Extensions: AR residuals

• Equity and debt

Exposures of German Sectors

Banks OFC GG NF

Central Bank 23.2 0.0 76.8 0.0

General Government 13.1 37.7 48.1 1.1

Banks 47.8 14.2 32.7 5.2

Nonfinancials 42.3 34.6 7.6 15.5

Households 44.9 35.1 5.7 14.3

Nonfinancial Corporations 32.2 38.9 9.2 19.6

NPISHs 46.5 26.9 12.6 14.0

Other Financial Corporations 29.6 17.5 31.9 21.0

Insurance and Pension Funds 37.9 12.3 36.7 13.1

Money Market Funds 26.5 19.4 30.2 23.8

Other 36.0 25.6 12.1 26.3

All sectors 34.4 18.4 33.3 13.9

• Should the source of foreign shocks matter?

Conclusions

• Very interesting paper to read

• Looking forward to the extensions promised in the paper