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Contagion in financial networks: a threat index

Author

Listed:
  • Gabrielle Demange

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract
This paper proposes to measure the spill-over effects that cross-liabilities generate on the magnitude of default in a system of financially linked institutions. Based on a simple model and an explicit criterion -the aggregate debt repayments- the measure is defined for each institution, affected by its characteristics and links to others. These measures -one for each institutionsummarize relevant information on the interaction between the liabilities structure and the shocks to resources and they can be useful to determine optimal intervention policies. The approach is illustrated to evaluate the consolidated foreign claims of 10 EU countries

Suggested Citation

  • Gabrielle Demange, 2016. "Contagion in financial networks: a threat index," Working Papers halshs-00662513, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00662513
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00662513v3
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    File URL: https://shs.hal.science/halshs-00662513v3/document
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    contagion of default; financial linkages; intervention policy;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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