Journal of Financial Market Infrastructures

SPEI’s diary: econometric analysis of a dynamic network

Miguel Angel Gavilan-Rubio and Biliana Alexandrova-Kabadjova

  • This paper identifies the forces driving SPEI, the Mexican payment system, between 2005 and 2015 using a TVC-FAVAR model and network metrics within FMI daily data.
  • System trend and stability of the system are the two main forces driving the system.
  • There is feedback between the forces driving SPEI and the network metrics.
  • Banks adjust their strategies of liquidity management in response to changes in the network structure.

This paper identifies the determinants behind the dynamics of the real-time settlement payment system in Mexico, SPEI, during the period January 2005–December 2015. To that end, we use a two-step econometric strategy. First, we estimate a time-varying coefficients factor-augmented vector autoregressive (TVC-FAVAR) model to identify the underlying dynamic factors. Second, we regress the fitted dynamic factors on SPEI’s network metrics, such as centrality, distance and bilateral relationships. These metrics capture different market aspects and help us to understand banks’ strategy patterns. We find that there are five factors driving the dynamics of the Mexican payment system, and linear combinations of the network metrics explain changes in these dynamics. The two main forces are (i) the trend, affected by most of the metrics; and (ii) the stability of the system, affected by centrality and the bilateral relationships. We also extend our analysis to understand how these forces affect funding patterns and liquidity management among banks. We find that changes in participants’ network position force banks to adjust their strategies of liquidity management.

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