Journal of Economic Literature
ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)
Contagion in Financial Networks
Journal of Economic Literature
vol. 54,
no. 3, September 2016
(pp. 779–831)
(Complimentary)
Abstract
The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research.Citation
Glasserman, Paul, and H. Peyton Young. 2016. "Contagion in Financial Networks." Journal of Economic Literature 54 (3): 779–831. DOI: 10.1257/jel.20151228Additional Materials
JEL Classification
- D85 Network Formation and Analysis: Theory
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G22 Insurance; Insurance Companies; Actuarial Studies
- G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 Financial Institutions and Services: Government Policy and Regulation