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Sovereign default contagion: an agent-based model approach

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  • João Silvestre
Abstract
Sovereign default contagion in Eurozone has been under attention since the first problems in Greece at the end of 2009. Despite the improvements in the situation, in particular after several European Central Bank non- conventional monetary policy measures, the roots of the problem and policy prescriptions are still fiercely debated today. Using an agent-based model adapted from Tirole (2015), we simulate sovereign default contagion in a world where countries have random incomes, heterogeneous borrowing behaviors and risk aversion levels and where governments have the possibility to enter in ex-ante agreements to protect against default. We conclude that default contagion can be a very fast and ‘destructive’ process, higher spending countries tend to have lower disposable incomes and higher risk aversion levels are associated with lower default rates.

Suggested Citation

  • João Silvestre, 2017. "Sovereign default contagion: an agent-based model approach," Working Papers Department of Economics 2017/08, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp082017
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    References listed on IDEAS

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    Cited by:

    1. Biondo, Alessio Emanuele, 2018. "Learning to forecast, risk aversion, and microstructural aspects of financial stability," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-21.

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    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G01 - Financial Economics - - General - - - Financial Crises

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