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Networks, Shocks, and Systemic Risk

Author

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  • Daron Acemoglu
  • Asuman Ozdaglar
  • Alireza Tahbaz-Salehi

Abstract

This chapter develops a unified framework for the study of how network interactions can function as a mechanism for propagation and amplification of microeconomic shocks. The framework nests various classes of games over networks, models of macroeconomic risk originating from microeconomic shocks, and models of financial interactions. Under the assumption that shocks are small, we provide a fairly complete characterization of the structure of equilibrium, clarifying the role of network interactions in translating microeconomic shocks into macroeconomic outcomes. This characterization enables us to rank different networks in terms of their aggregate performance. It also sheds light on several seemingly contradictory results in the prior literature on the role of network linkages in fostering systemic risk.

Suggested Citation

  • Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Networks, Shocks, and Systemic Risk," NBER Working Papers 20931, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20931
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    References listed on IDEAS

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    Cited by:

    1. repec:bis:bisifc:45-06 is not listed on IDEAS
    2. Meng Yu & Junnan Zhang, 2019. "Equilibrium in Production Chains with Multiple Upstream Partners," Papers 1908.08208, arXiv.org.
    3. Murat Cakir, 2017. "A conceptual design of "what and how should a proper macro-prudential policy framework be?" A globalistic approach to systemic risk and procuring the data needed," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Uses of central balance sheet data offices' information, volume 45 Bank for International Settlements.
    4. Grant, Everett & Yung, Julieta, 2017. "The Double-Edged Sword of Global Integration: Robustness, Fragility & Contagion in the International Firm Network," Globalization Institute Working Papers 313, Federal Reserve Bank of Dallas.
    5. Silva, Thiago Christiano & da Silva, Michel Alexandre & Tabak, Benjamin Miranda, 2017. "Systemic risk in financial systems: A feedback approach," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 97-120.
    6. Hong, Sungki, 2017. "Markup Cyclicality: A Tale of Two Models," Working Papers 2017-34, Federal Reserve Bank of St. Louis.
    7. Thiago Christiano Silva & Michel Alexandre da Silva & Benjamin Miranda Tabak, 2016. "Modeling Financial Networks: a feedback approach," Working Papers Series 438, Central Bank of Brazil, Research Department.
    8. David Rezza Baqaee, 2018. "Cascading Failures in Production Networks," Econometrica, Econometric Society, vol. 86(5), pages 1819-1838, September.
    9. repec:eee:finsta:v:35:y:2018:i:c:p:93-106 is not listed on IDEAS
    10. repec:eee:gamebe:v:114:y:2019:i:c:p:47-82 is not listed on IDEAS
    11. Gustavo Peralta & Ricardo Crisóstomo, 2016. "Financial contagion with spillover effects: a multiplex network approach," ESRB Working Paper Series 32, European Systemic Risk Board.
    12. Paul Glasserman, 2015. "Contagion in Financial Networks," Economics Series Working Papers 764, University of Oxford, Department of Economics.
    13. Paul Glasserman & H. Peyton Young, 2015. "Contagion in Financial Markets," Working Papers 15-21, Office of Financial Research, US Department of the Treasury.

    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises

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