IDEAS home Printed from https://ideas.repec.org/a/eee/chsofr/v91y2016icp591-597.html
   My bibliography  Save this article

Contagion risk in endogenous financial networks

Author

Listed:
  • Li, Shouwei
  • Sui, Xin

Abstract

In this paper, we investigate contagion risk in an endogenous financial network, which is characterized by credit relationships connecting downstream and upstream firms, interbank credit relationships and credit relationships connecting firms and banks. The findings suggest that: increasing the number of potential lenders randomly selected can lead to an increase in the number of bank bankruptcies, while the number of firm bankruptcies presents a trend of increase after the decrease; after the intensity of choice parameter rises beyond a threshold, the number of bankruptcies in three sectors (downstream firms, upstream firms and banks) shows a relatively large margin of increase, and keeps at a relatively high level; there exists different trends for bankruptcies in different sectors with the change of the parameter of credits’ interest rates.

Suggested Citation

  • Li, Shouwei & Sui, Xin, 2016. "Contagion risk in endogenous financial networks," Chaos, Solitons & Fractals, Elsevier, vol. 91(C), pages 591-597.
    • Handle: RePEc:eee:chsofr:v:91:y:2016:i:c:p:591-597
    DOI: 10.1016/j.chaos.2016.08.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0960077916302430
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chaos.2016.08.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yoshi Fujiwara, 2008. "Chain Of Firms' Bankruptcy: A Macroscopic Study Of Link Effect In A Production Network," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 11(05), pages 703-717.
    2. Jean Tirole, 2011. "Illiquidity and All Its Friends," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 287-325, June.
    3. Iacopo Mastromatteo & Elia Zarinelli & Matteo Marsili, 2012. "Reconstruction of financial network for robust estimation of systemic risk," Post-Print hal-00714026, HAL.
    4. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 4(2), pages 195-212, November.
    5. Tingqiang Chen & Xindan Li & Jining Wang, 2015. "Spatial Interaction Model of Credit Risk Contagion in the CRT Market," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 519-537, December.
    6. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    7. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
    8. Barro, Diana & Basso, Antonella, 2010. "Credit contagion in a network of firms with spatial interaction," European Journal of Operational Research, Elsevier, vol. 205(2), pages 459-468, September.
    9. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1627-1650, September.
    10. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2006. "Business fluctuations in a credit-network economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 68-74.
    11. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
    12. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
    13. Hertzel, Michael G. & Li, Zhi & Officer, Micah S. & Rodgers, Kimberly J., 2008. "Inter-firm linkages and the wealth effects of financial distress along the supply chain," Journal of Financial Economics, Elsevier, vol. 87(2), pages 374-387, February.
    14. Iori, Giulia & Jafarey, Saqib & Padilla, Francisco G., 2006. "Systemic risk on the interbank market," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 525-542, December.
    15. Angelika Sachs, 2014. "Completeness, interconnectedness and distribution of interbank exposures-a parameterized analysis of the stability of financial networks," Quantitative Finance, Taylor & Francis Journals, vol. 14(9), pages 1677-1692, September.
    16. Iacopo Mastromatteo & Elia Zarinelli & Matteo Marsili, 2011. "Reconstruction of financial network for robust estimation of systemic risk," Papers 1109.6210, arXiv.org, revised Feb 2012.
    17. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Leveraged network-based financial accelerator," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1626-1640.
    18. Lenzu, Simone & Tedeschi, Gabriele, 2012. "Systemic risk on different interbank network topologies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(18), pages 4331-4341.
    19. Shouwei Li, 2011. "Contagion Risk In An Evolving Network Model Of Banking Systems," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 14(05), pages 673-690.
    20. Ting-Qiang Chen & Jian-Min He, 2012. "A Network Model of Credit Risk Contagion," Discrete Dynamics in Nature and Society, Hindawi, vol. 2012, pages 1-13, December.
    21. Aymanns, Christoph & Georg, Co-Pierre, 2015. "Contagious synchronization and endogenous network formation in financial networks," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 273-285.
    22. Stefan Thurner & Sebastian Poledna, 2013. "DebtRank-transparency: Controlling systemic risk in financial networks," Papers 1301.6115, arXiv.org.
    23. Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Shouwei & Liu, Yifu & Wu, Chaoqun, 2020. "Systemic risk in bank-firm multiplex networks," Finance Research Letters, Elsevier, vol. 33(C).
    2. Qian, Qian & Feng, Hairong & Gu, Jing, 2021. "The influence of risk attitude on credit risk contagion—Perspective of information dissemination," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 582(C).
    3. María Escribano-Navas & German Gemar, 2021. "Gender and Bankruptcy: A Hotel Survival Econometric Analysis," Sustainability, MDPI, vol. 13(12), pages 1-13, June.
    4. Rémi Stellian & Gabriel I. Penagos & Jenny P. Danna-Buitrago, 2021. "Firms in financial distress: evidence from inter-firm payment networks with volatility driven by ‘animal spirits’," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(1), pages 59-101, January.
    5. Sui, Xin & Li, Liang, 2018. "Guarantee network model and risk contagion," Chaos, Solitons & Fractals, Elsevier, vol. 106(C), pages 323-329.
    6. Chen, Tingqiang & Wang, Jiepeng & Liu, Haifei & He, Yuanping, 2019. "Contagion model on counterparty credit risk in the CRT market by considering the heterogeneity of counterparties and preferential-random mixing attachment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 520(C), pages 458-480.
    7. Wang, Lei & Li, Shouwei & Wang, Jining & Meng, Yi, 2020. "Real estate bubbles in a bank-real estate loan network model integrating economic cycle and macro-prudential stress testing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 542(C).
    8. Wang, Lei & Li, Shouwei & Chen, Tingqiang, 2019. "Investor behavior, information disclosure strategy and counterparty credit risk contagion," Chaos, Solitons & Fractals, Elsevier, vol. 119(C), pages 37-49.
    9. Liang He & Shouwei Li, 2017. "Network Entropy and Systemic Risk in Dynamic Banking Systems," Complexity, Hindawi, vol. 2017, pages 1-7, November.
    10. Haifei Liu & Tingqiang Chen & Zuhan Hu, 2017. "Dynamic Evolution of Securities Market Network Structure under Acute Fluctuation Circumstances," Complexity, Hindawi, vol. 2017, pages 1-11, November.
    11. Shouwei Li & Shihang Wen, 2017. "Multiplex Networks of the Guarantee Market: Evidence from China," Complexity, Hindawi, vol. 2017, pages 1-7, July.
    12. Rémi Stellian & Jenny P. Danna‐Buitrago, 2020. "Financial distress, free cash flow, and interfirm payment network: Evidence from an agent‐based model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(4), pages 598-616, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Morteza Alaeddini & Philippe Madiès & Paul J. Reaidy & Julie Dugdale, 2023. "Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 573-654, April.
    2. Andre R. Neveu, 2018. "A survey of network-based analysis and systemic risk measurement," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(2), pages 241-281, July.
    3. He, Jianmin & Sui, Xin & Li, Shouwei, 2016. "An endogenous model of the credit network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 441(C), pages 1-14.
    4. Shouwei Li & Shihang Wen, 2017. "Multiplex Networks of the Guarantee Market: Evidence from China," Complexity, Hindawi, vol. 2017, pages 1-7, July.
    5. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1627-1650, September.
    6. Li, Zhinan & Pei, Shan & Li, Ting & Wang, Yu, 2023. "Risk spillover network in the supply chain system during the COVID-19 crisis: Evidence from China," Economic Modelling, Elsevier, vol. 126(C).
    7. Giulia Poce & Giulio Cimini & Andrea Gabrielli & Andrea Zaccaria & Giuditta Baldacci & Marco Polito & Mariangela Rizzo & Silvia Sabatini, 2016. "What do central counterparties default funds really cover? A network-based stress test answer," Papers 1611.03782, arXiv.org.
    8. Tingqiang Chen & Binqing Xiao & Haifei Liu, 2018. "Credit Risk Contagion in an Evolving Network Model Integrating Spillover Effects and Behavioral Interventions," Complexity, Hindawi, vol. 2018, pages 1-16, March.
    9. Vitali, Stefania & Battiston, Stefano & Gallegati, Mauro, 2016. "Financial fragility and distress propagation in a network of regions," Journal of Economic Dynamics and Control, Elsevier, vol. 62(C), pages 56-75.
    10. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    11. Yun, Tae-Sub & Jeong, Deokjong & Park, Sunyoung, 2019. "“Too central to fail” systemic risk measure using PageRank algorithm," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 251-272.
    12. Marco Bardoscia & Paolo Barucca & Stefano Battiston & Fabio Caccioli & Giulio Cimini & Diego Garlaschelli & Fabio Saracco & Tiziano Squartini & Guido Caldarelli, 2021. "The Physics of Financial Networks," Papers 2103.05623, arXiv.org.
    13. repec:wsi:acsxxx:v:21:y:2018:i:08:n:s0219525918500200 is not listed on IDEAS
    14. Bargigli, Leonardo & Gallegati, Mauro & Riccetti, Luca & Russo, Alberto, 2014. "Network analysis and calibration of the “leveraged network-based financial accelerator”," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 109-125.
    15. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    16. Zhang, Minghui & He, Jianmin & Li, Shouwei, 2018. "Interbank lending, network structure and default risk contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 493(C), pages 203-209.
    17. Ladley, Daniel, 2013. "Contagion and risk-sharing on the inter-bank market," Journal of Economic Dynamics and Control, Elsevier, vol. 37(7), pages 1384-1400.
    18. Valentina Macchiati & Giuseppe Brandi & Tiziana Di Matteo & Daniela Paolotti & Guido Caldarelli & Giulio Cimini, 2022. "Systemic liquidity contagion in the European interbank market," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(2), pages 443-474, April.
    19. Opeoluwa Banwo & Fabio Caccioli & Paul Harrald & Francesca Medda, 2016. "The Effect Of Heterogeneity On Financial Contagion Due To Overlapping Portfolios," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 19(08), pages 1-20, December.
    20. Kartik Anand & Ben Craig & Goetz von Peter, 2015. "Filling in the blanks: network structure and interbank contagion," Quantitative Finance, Taylor & Francis Journals, vol. 15(4), pages 625-636, April.
    21. Mitja Steinbacher & Matthias Raddant & Fariba Karimi & Eva Camacho Cuena & Simone Alfarano & Giulia Iori & Thomas Lux, 2021. "Advances in the agent-based modeling of economic and social behavior," SN Business & Economics, Springer, vol. 1(7), pages 1-24, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chsofr:v:91:y:2016:i:c:p:591-597. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thayer, Thomas R. (email available below). General contact details of provider: https://www.journals.elsevier.com/chaos-solitons-and-fractals .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.