Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241076 
Year of Publication: 
2020
Series/Report no.: 
MNB Working Papers No. 2020/6
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
In this paper we develop a model of shock propagation in the banking system with feedback channels towards the real economy. Our framework incorporates the interactions between the network of banks (exhibiting contagion mechanisms among them) and the network of firms (transmitting shocks to each other along the supply chain) which systems are linked together via loan-contracts. Our hypothesis was, that the feedback mechanisms in these coupled networks could amplify the losses in the economy beyond the shortfalls expected when we consider the subsystems in isolation. As a test for this, we embedded the model into a liquidity stress testing framework of the Central Bank of Hungary, and our results proved the importance of the real economy feedback channel, which almost doubled the system-wide losses. To illustrate the versatility of our modeling framework, we presented two further applications for different policy purposes: (i) We elaborated a way to use the model for SIFI identification, (ii) and we showed an example of assessing the impact of shocks originated in the real economy.
Subjects: 
systemic risk
financial network
production network
contagion
JEL: 
G01
G21
G28
C63
Document Type: 
Working Paper

Files in This Item:
File
Size





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