Temporal networks and financial contagion

Fabio Franch, Luca Nocciola and Angelos Vouldis

Journal of Financial Stability, 2024, vol. 71, issue C

Abstract: This paper studies the dynamics of contagion across the banking, insurance and shadow banking sectors of 18 advanced economies in the period 2006-2018. We construct Granger causality-in-risk networks and introduce higher-order aggregate networks and higher-order node centralities in an economic setting to capture non-Markovian network features. Our approach uncovers the dynamics of financial contagion as it is transmitted across segments of the financial system and jurisdictions. The calculated higher-order centralities identify sectors in distress as the nodes through which contagion propagates. The banking system emerges as the primary source and transmitter of stress while banks and shadow banks are highly interconnected. The insurance sector is found to contribute less to stress transmission in all periods, except during the global financial crisis. The proposed approach is able to identify clearly the sectors that are critical for the transmission of financial contagion, in contrast to the commonly used memoryless measures of network centrality.

Keywords: Financial institutions; Systemic risk; Network analysis; Financial crisis; Contagion (search for similar items in EconPapers)
JEL-codes: C02 C22 G01 G2 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Temporal networks in the analysis of financial contagion (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:71:y:2024:i:c:s1572308924000093

DOI: 10.1016/j.jfs.2024.101224

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