Structural contagion and vulnerability to unexpected liquidity shortfalls
AbstractThis paper assumes that financial fluctuations are the result of the dynamic interaction between liquidity and solvency conditions of individual economic units. The framework is an extention of Sordi and Vercelli (2012) designed as an heterogeneous agent model which proceeds through discrete time steps within a finite time horizon. The interaction at the micro-level between economic units monitors the spread of contagion and systemic risk, producing interesting complex dynamics. The model is analysed by means of numerical simulations and systemic risk modelling, where local interaction of units is captured and analysed by the bilateral provision of liquidity among units. The behaviour and evolution of economic units are studied for different parameter regimes in order to investigate the relation between units’ expectations, liquidity regimes and contagion. Liquidity policy implications are briefly discussed.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 83 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/jebo
Financial fluctuations; Contagion; Systemic risk; Heterogeneous agents; Complex dynamics;
Find related papers by JEL classification:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G01 - Financial Economics - - General - - - Financial Crises
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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