Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119860
Authors: 
Chinazzi, Matteo
Pegoraro, Stefano
Fagiolo, Giorgio
Year of Publication: 
2015
Series/Report no.: 
LEM Working Paper Series 2015/16
Abstract: 
In this paper we contribute to the debate on macro-prudential regulation by assessing which structure of the financial system is more resilient to exogenous shocks, and which conditions, in terms of balance sheet compositions, capital requirements and asset prices, guarantee the higher degree of stability. We use techniques drawn from the theory of complex networks to show how contagion can propagate under different scenarios when the topology of the financial system, the characteristics of the financial institutions, and the regulations on capital are let vary. First, we benchmark our results using a simple model of contagion as the one that has been popularized by Gai and Kapadia (2010). Then, we provide a richer model in which both short- and long-term interbank markets exist. By doing so, we study how liquidity shocks (de)stabilize the system under different market conditions. Our results demonstrate how connectivity, the topology of the markets and the characteristics of the financial institutions interact in determining the stability of the system.
Subjects: 
financial networks
systemic risk
contagion
regulation
network topology
JEL: 
C63
G01
G21
Document Type: 
Working Paper

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