Abstract:
Macroeconomic sectors are interconnected through financial assets and liabilities, which form a macro-financial network, and these present risk exposure within and between them through asset–liability linkages, which amplifies final losses. This paper uses the network matrix method in the input–output analysis to construct a default risk and liquidity risk contagion model, proposing quantitative standards such as a system importance index based on sectorial comparison and a global macro-financial risk index. Using the latest analysis of China’s national balance sheet data, systemic risks are found to show an upward trend since 2009. The financial sector is of the greatest systemic importance, while residents and government departments are relatively independent. Policy simulation suggests that cleaning up zombie enterprises will produce a multiplier effect of 3.8 times, but it will also optimise the macro-financial network structure and reduce systemic risks. Given the sharp increase in systemic risks since 2008, it is suggested that a continuous structural deleveraging process should be carried out that emphasizes the improvement of the macro-financial network structure and is aware of the risk caused by risk disposal.

Key words: macro-financial network, financial stability, national balance sheets