Markets connectivity and financial contagion

Ruggero Grilli, Gabriele Tedeschi and Mauro Gallegati

No 382, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: In this paper we investigate the sources of instability in credit and financial systems and the effect of credit linkages on the macroeconomic activity. By developing an agent-based model, we analyze the evolving dynamics of the economy as a complex, adaptive and interactive system, which allows us to explain some key elements occurred during the recent economic and financial crisis. In particular, we study the repercussions of inter-bank connectivity on agents' performances, bankruptcy waves and business cycle fluctuations. Interbank linkages, in fact, let participants share risk but also creates a potential for one bank's crisis to spread through the network. The purpose of the model is, therefore, to build up the dependence among agents at the micro-level and to estimate their impact on the macro stability.

Keywords: Systemic risk; business cycle; giant component; network connectivity; volatility (search for similar items in EconPapers)
Pages: 22
Date: 2012-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-hme, nep-mac and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Journal Article: Markets connectivity and financial contagion (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:382

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