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Contagious Runs: Who Initiates?

Author

Listed:
  • Dong Beom Choi

    (Federal Reserve Bank of New York)

Abstract

This paper presents a model of contagious panic between two regions with heterogeneous fragilities. When there is no strategic risk, the spillover is always one-directional; the contagion can only originate from the fundamentally weaker region spilling over to the stronger. When strategic risks due to strategic complementarities cause a self-fulfilling panic, the direction of the contagion could be reversed; panic in the stronger region could generate a contagious panic in the weaker. We show that this depends on the difference in severity of coordination problems between the two regions and the scale of potential spillovers.

Suggested Citation

  • Dong Beom Choi, 2016. "Contagious Runs: Who Initiates?," Economics Bulletin, AccessEcon, vol. 36(1), pages 253-259.
    • Handle: RePEc:ebl:ecbull:eb-16-00095
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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I1-P25.pdf
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    More about this item

    Keywords

    Contagion; Self-fulfilling panic; Global games; Network;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services

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