Bad banks choking good banks: simulating balance sheet contagion

Saed Khalil and Stephen Kinsella ()
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Saed Khalil: Palestine Monetary Authority & Birzeit University

No 201126, Working Papers from Geary Institute, University College Dublin

Abstract: We investigate the propogation of contagion through banks' balance sheets in a two-country model. We simulate an increase in non-performing loans in one bank, and study the effects on other banks and the macro economy of each country. We show that credit crunches destabilize each economy in the short run and in the long run reduce potential output. We quantify this loss.

Keywords: credit crunch; contagion; stock flow consistent models (search for similar items in EconPapers)
JEL-codes: E32 E37 E51 G33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-10-06
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ucd:wpaper:201126

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