Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154133
Authors: 
Georg, Co-Pierre
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1700
Abstract: 
When banks choose similar investment strategies, the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy ex-ante based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social belief is strong and the financial network is fragmented, banks follow their peers and their investment strategies synchronize. This effect is stronger for less informative private signals. For endogenously formed interbank networks, however, less informative signals lead to higher network density and less synchronization. It is shown that the former effect dominates the latter.
Subjects: 
endogenous nancial networks
multi-agent simulations
social learning
systemic risk
JEL: 
G21
C73
D53
D85
ISBN: 
978-92-899-1108-5
Document Type: 
Working Paper

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