Contagion in financial networks

Prasanna Gai () and Sujit Kapadia
Additional contact information
Prasanna Gai: Australian National University

No 383, Bank of England working papers from Bank of England

Abstract: This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.

Keywords: Contagion; network models; systemic risk; liquidity risk; financial crises (search for similar items in EconPapers)
JEL-codes: D85 G01 G21 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-03-23
New Economics Papers: this item is included in nep-ban and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (624)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... nancial-networks.pdf Full text (application/pdf)

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: https://EconPapers.repec.org/RePEc:boe:boeewp:0383

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().