A Network Model of Super-systemic Crises

Prasanna Gai and Sujit Kapadia

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Although the financial systems of advanced countries have weathered numerous shocks in recent years, the events triggered by the sub-prime crisis of August 2007 have been “super-systemic” in scope, enveloping financial institutions across the major economies as well as far away Iceland and New Zealand. In this paper, we apply network techniques to develop a framework for analyzing financial contagion that isolate the probability of contagion from its potential spread. Our results suggest that complex financial systems may be robust-yet-fragile in nature. Under plausible assumptions, the greater connectivity implied by new financial instruments (e.g., credit derivatives) reduces the likelihood of contagion. But the impact on the financial system, in the event of problems, can be on a significantly larger scale than before.

Date: 2009-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_542.pdf (application/pdf)

Related works:
Chapter: A Network Model of Super-Systemic Crises (2011)
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:chb:bcchwp:542

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().