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Simulating financial contagion dynamics in random interbank networks

John Leventides, Kalliopi Loukaki and Vassilios Papavassiliou

Journal of Economic Behavior & Organization, 2019, vol. 158, issue C, 500-525

Abstract: The purpose of this study is to assess the resilience of financial systems to exogenous shocks using techniques drawn from the theory of complex networks. We investigate by means of Monte Carlo simulations the fragility of several network topologies using a simple default model of contagion applied on interbank networks of varying sizes. We trigger a series of banking crises by exogenously failing each bank in the system and observe the propagation mechanisms that take effect within the system under different scenarios. Finally, we add to the existing literature by analyzing the interplay of several crucial drivers of interbank contagion, such as network topology, leverage, interconnectedness, heterogeneity and homogeneity across bank sizes and interbank exposures.

Keywords: Interbank contagion; Random networks; Financial stability; Interconnectedness; Systemic risk (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Simulating financial contagion dynamics in random interbank networks (2018) Downloads
Working Paper: Simulating financial contagion dynamics in random interbank networks (2018) Downloads
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