Hellenic Open University Conferences, International Conference on Business & Economics of the Hellenic Open University 2015

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Network Analysis for Central Banks
Periklis Gogas, Theophilos Papadimitriou, Georgios Antonios Sarantitis

Building: Titania
Room: Solon
Date: 2015-02-07 04:00 PM – 06:00 PM
Last modified: 2015-01-27

Abstract


Graph Theory and network analysis have recently been incorporated in the financial analysis’ departments of Central Banks. In this study we introduce the utility of complex networks as a tool for macroeconomic modelling and decision making. More specifically we use simple network metrics, community detection algorithms and an optimization technique called the Threshold-Minimum Dominating Set to provide a multi-level analysis of the United Kingdom’s Consumer Price Index (CPI). Our empirical analysis yields various interesting results. The 85 classes that comprise the UK CPI display complex inter-relations that cannot be captured by classic econometric analysis. UK’s CPI presents specific behavior prior to a crisis that could be exploited to produce an alert gauge for future shocks. A small group of those classes can be used to construct a new index that satisfies the criteria and can be used as an alternative measure of core inflation by the Bank of England.

Keywords


Monetary analysis; Inflation; Network Analysis; Threshold-Minimum Dominating Set; Optimization