Economics at your fingertips  

Bank interlinkages and macroeconomic stability

Ruggero Grilli, Gabriele Tedeschi () and Mauro Gallegati ()

International Review of Economics & Finance, 2014, vol. 34, issue C, 72-88

Abstract: In this paper we analyze the role of the relationship between investment and finance as the main source of both financial instability and business cycle fluctuations. By building an agent-based model, our aim is to explicitly consider the complex nature of credit markets as strongly interactive and evolving structures that can be suitably depicted by networks. In this type of setting, the nodes of a graph represent banks/firms and links represent the relationship between lending and borrowing agents. Since both loans and bad debts proceed through credit linkages, we analyze how market connectivity — in particular the interbank one — affects agents' performances, bankruptcy cascades and business cycle fluctuations. Specifically, interbank linkages allow banks to share credit risk but at the same time they can spread one bank's crisis through the whole network. Ultimately, the goal of our model is to analyze how microscopic interaction feeds back on macro stability.

Keywords: Systemic risk; Business cycle; Volatility; Network connectivity; Giant component (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
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:

DOI: 10.1016/j.iref.2014.07.002

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-07-08
Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:72-88