EconStor >
Max-Planck-Institut für Ökonomik, Jena >
Jena Economic Research Papers, MPI für Ökonomik >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/36676
  
Title:Systemic risk in a network model of interbank markets with central bank activity PDF Logo
Authors:Georg, Co-Pierre
Poschmann, Jenny
Issue Date:2010
Series/Report no.:Jena economic research papers 2010,033
Abstract:The breakdown of the interbank money markets in the face of the recent financial crisis has forced central banks and governments to take extraordinary measures to sustain financial stability. In this paper we investigate which influence central bank activity has on interbank markets. In our model, banks optimize a portfolio of risky investments and riskless excess reserves according to their risk and liquidity preferences. They are linked via interbank loans and face a stochastic supply of household deposits. We then introduce a central bank into the model and show that central bank activity enhances financial stability. We model the default of a large bank and analyse the resulting contagion effects. This is compared to a common shock that hits banks who have invested in similiar assets. Our results indicate that common shocks are not subordinate to contagion effects, but are instead the greater threat to systemic stability.
Subjects:systemic risk
interbank markets
monetary policy
contagion
common shocks
JEL:C63
E52
E58
G01
G21
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

Files in This Item:
File Description SizeFormat
62760367X.pdf608.14 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/36676

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.