Systemic Risk and Stability in Financial Networks

@article{Acemoglu2013SystemicRA,
  title={Systemic Risk and Stability in Financial Networks},
  author={Daron Acemoglu and A. Ozdaglar and A. Tahbaz-Salehi},
  journal={Macroeconomics: Monetary & Fiscal Policies eJournal},
  year={2013}
}
  • Daron Acemoglu, A. Ozdaglar, A. Tahbaz-Salehi
  • Published 2013
  • Economics
  • Macroeconomics: Monetary & Fiscal Policies eJournal
  • This paper argues that the extent of financial contagion exhibits a form of phase transition: as long as the magnitude of negative shocks affecting financial institutions are sufficiently small, a more densely connected financial network (corresponding to a more diversified pattern of interbank liabilities) enhances financial stability. However, beyond a certain point, dense interconnections serve as a mechanism for the propagation of shocks, leading to a more fragile financial system. Our… CONTINUE READING
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