Financial fragility and distress propagation in a network of regions

Stefania Vitali, Stefano Battiston and Mauro Gallegati

Working Papers from ETH Zurich, Chair of Systems Design

Abstract: Building on previous works on business fluctuations, we model the propagation of financial distress in a network of regions, each populated by heterogeneous interacting firms and banks. In order to diversify risk, firm sell goods outside their own region and borrow from banks located there. However, this results in ties across regions which propagate financial distress across regional borders. We investigate how the average level of economic integration affects the probability of both individual and systemic failures. We find that the benefit of greater diversification is eventually offset by the effect of financial acceleration and contagion. In particular, beyond a certain level of integration the economy suffers more frequently from events with larger numbers of simultaneous failures.

Keywords: Networks; Financial Fragility; Contagion; Business Fluctuations; Bankruptcy; Financial Acceleration (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
ftp://web.sg.ethz.ch/RePEc/stz/wpaper/pdf/ETH-RC-12-016.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server web.sg.ethz.ch: A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.

Related works:
Journal Article: Financial fragility and distress propagation in a network of regions (2016)
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:stz:wpaper:eth-rc-12-016

Access Statistics for this paper

More papers in Working Papers from ETH Zurich, Chair of Systems Design Contact information at EDIRC.
Bibliographic data for series maintained by Claudio J. Tessone ( this e-mail address is bad, please contact ).