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Risk amplification effect of multilayer financial networks: Feedback mechanism or cyclic structure?

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  • Pang, Congyuan
  • Fan, Hong

Abstract

This paper analyzes the amplification characteristics of risk propagation in multi-layer financial networks from the perspective of network topologies. The research finds that, even without feedback pathways, cross-layer links alone can lead to more severe risk contagion than in single-layer networks. More importantly, with increasing connectivity, the formation of cyclic structures in multi-layer networks will significantly exacerbate the systemic risk.

Suggested Citation

  • Pang, Congyuan & Fan, Hong, 2024. "Risk amplification effect of multilayer financial networks: Feedback mechanism or cyclic structure?," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003719
    DOI: 10.1016/j.econlet.2024.111887
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    References listed on IDEAS

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    More about this item

    Keywords

    Multilayer financial networks; Systemic risk; Feedback mechanism; Cyclic structure;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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