RIETI Report August 2021

Money flow networks: Evidence from Japan

In the August issue of the RIETI Report, we present "Money flow networks: Evidence from Japan" by Yoshi Fujiwara, Hiroyasu Inoue, Takayuki Yamauchi, Hideaki Aoyama, Takuma Tanaka, Kentaro Kikuchi.

By using big data from a regional bank in Japan, they captured the money flows for a regional economy through an analysis of transfer direction and amounts for 30,000 business accounts housed in that bank over a more than two-year period. The data covered 2.4 million remittances, with a value of 2.1 billion yen. As this type of big data analysis allows for the real-time monitoring of the real economy, their ground-breaking research could lead to improved risk management, and aid in regional promotion and responses to economic shocks such as the one caused by Covid-19.

This month's featured article

Money flow networks: Evidence from Japan

FUJIWARA YoshiUniversity of Hyogo

INOUE HiroyasuUniversity of Hyogo

YAMAGUCHI TakayukiShiga University

AOYAMA HideakiFaculty Fellow, RIETI

TANAKA TakumaShiga University

KIKUCHI KentaroShiga University

Real-time monitoring of the real economy provides us with a useful tool for understanding the present as well as predicting the future. Monitoring tools that utilise massive amounts of data, in particular on daily or even shorter timescales, have recently become widely available (e.g. Diebold 2021). In this setting, we utilise big data of bank accounts of firms to understand the money flow in a regional economy comprising of the firms and their supplier-customer relationship. This opens up a variety of possibilities for applications such as capturing dynamics under booms and busts of the regional economy, detecting abrupt change due to natural disasters or pandemics, or estimating the possible impact of defaults of firms (to name a few). To the best of our knowledge, such a study has not been conducted to date. This is because such data are not available due to privacy issues, even for academic purposes. Here we report a first step in making such a study feasible on a region-wide scale in collaboration with a regional bank in Japan.

We shall show that firms' accounts in a bank can provide an ideal tool for understanding the structure of money flow behind the economic activities (Fujiwara et al. 2021). Our approach is built upon the complex network comprised of firms as nodes and money flow as links (see Aoyama et al. 2017 for a broader perspective).

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