September 2021 Editor’s Choice

September 2021 Editor’s Choice: “Network Risk and Key Players: A Structural Analysis of Interbank Liquidity”

Do bank reserve networks amplify or reduce shocks? It depends on whether reserve holdings are strategic substitutes or complements. In the former case, the network dampens shocks, and in the latter it amplifies shocks. By estimating a model on U.K. bank data, the paper finds that the network amplified shocks before the financial crisis, but dampened them after.