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Title:A network model of financial system resilience PDF Logo
Authors:Anand, Kartik
Gai, Prasanna
Kapadia, Sujit
Brennan, Simon
Willison, Matthew
Issue Date:2011
Series/Report no.:SFB 649 discussion paper 2011-051
Abstract:We examine the role of macroeconomic fluctuations, asset market liquidity, and network structure in determining contagion and aggregate losses in a financial system. Systemic instability is explored in a financial network comprising three distinct, but interconnected, sets of agents - domestic banks, international financial institutions, and firms. Calibrating the model to advanced country banking sector data, we obtain sensible aggregate loss distributions which are bimodal in nature. We demonstrate how systemic crises may occur and analyze how our results are influenced by firesale externalities and the feedback effects from curtailed lending in the macroeconomy. We also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices.
Subjects:contagion
financial crises
network models
systemic risk
JEL:C63
G01
G17
G21
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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