Risk contagion in production-bank bilayer networks

Hongtao Wang and Shupei Huang

Economics Letters, 2025, vol. 248, issue C

Abstract: The close interconnection between the real economy and the financial system implies that shocks to the real economy inevitably impact the financial system. However, existing research typically examines the financial system in isolation. This study introduces a production-bank bilayer network model that integrates both aspects. Using input–output data and banking data from China, we conduct simulation analyses to explore how shocks on production networks trigger financial risk contagion. Our findings demonstrate the mechanisms and pathways through which disruptions in the production layer propagate to the financial layer, highlighting the systemic risks arising from these interdependencies. We reveal the direct and indirect impacts of shocks and identify threshold for triggering systemic risk. This research provides a new framework for understanding the interaction between the real economy and the financial system.

Keywords: Bilayer networks; Production networks; Bank networks; Financial contagion (search for similar items in EconPapers)
JEL-codes: D57 D85 G32 G33 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000485

DOI: 10.1016/j.econlet.2025.112211

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