Static and dynamic networks in interbank markets

Ethan Cohen-Cole, Eleonora Patacchini and Yves Zenou

Network Science, 2015, vol. 3, issue 1, 98-123

Abstract: This paper proposes a model of network interactions in the interbank market. Our innovation is to model systemic risk in the interbank network as the propagation of incentives or strategic behavior rather than the propagation of losses after default. Transmission in our model is not based on default. Instead, we explain bank profitability based on competition incentives and the outcome of a strategic game. As competitors' lending decisions change, banks adjust their own decisions as a result: generating a “transmission” of shocks through the system. We provide a unique equilibrium characterization of a static model, and embed this model into a full dynamic model of network formation. We also determine the key bank, which is the bank that is crucial for the stability of the financial network.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Static and dynamic networks in interbank markets (2015)
Working Paper: Static and Dynamic Networks in Interbank Markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:netsci:v:3:y:2015:i:01:p:98-123_00

Access Statistics for this article

More articles in Network Science from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().