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Contagion in Financial Networks

Paul Glasserman and H. Peyton Young

Journal of Economic Literature, 2016, vol. 54, issue 3, 779-831

Abstract: The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research.

JEL-codes: D85 E44 G01 G21 G22 G23 G28 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/jel.20151228
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Handle: RePEc:aea:jeclit:v:54:y:2016:i:3:p:779-831