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Financial Contagion and Network Analysis

Author

Listed:
  • Martin Summer

    (Economic Studies Division, Oesterreichische Nationalbank, A-1011 Wien, Austria)

Abstract

Network models of interbank exposures allow the mapping of the complex web of financial linkages among many institutions and address issues of system stability and contagion risk. Although existing models cover a fair amount of ground in explaining how network structure can lead to default cascades and in quantifying the likelihood and the impact of default cascades through balance-sheet mechanics, the literature has shortcomings in explaining how shocks are potentially amplified through the network of exposures. These amplification mechanisms seem to be very important in financial crises. This review discusses the main conceptual ideas behind network models of contagion, the major findings of this literature, as well as some limitations of existing models.

Suggested Citation

  • Martin Summer, 2013. "Financial Contagion and Network Analysis," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 277-297, November.
    • Handle: RePEc:anr:refeco:v:5:y:2013:p:277-297
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110112-120948
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    More about this item

    Keywords

    contagion; interbank market; systemic risk; financial stability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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