Contagious Runs: Who Initiates?

Dong Beom Choi

Economics Bulletin, 2016, vol. 36, issue 1, 253-259

Abstract: This paper presents a model of contagious panic between two regions with heterogeneous fragilities. When there is no strategic risk, the spillover is always one-directional; the contagion can only originate from the fundamentally weaker region spilling over to the stronger. When strategic risks due to strategic complementarities cause a self-fulfilling panic, the direction of the contagion could be reversed; panic in the stronger region could generate a contagious panic in the weaker. We show that this depends on the difference in severity of coordination problems between the two regions and the scale of potential spillovers.

Keywords: Contagion; Self-fulfilling panic; Global games; Network (search for similar items in EconPapers)
JEL-codes: D8 G2 (search for similar items in EconPapers)
Date: 2016-02-21
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