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Risk contagion in production-bank bilayer networks

Author

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  • Wang, Hongtao
  • Huang, Shupei

Abstract

The close interconnection between the real economy and the financial system implies that shocks to the real economy inevitably impact the financial system. However, existing research typically examines the financial system in isolation. This study introduces a production-bank bilayer network model that integrates both aspects. Using input–output data and banking data from China, we conduct simulation analyses to explore how shocks on production networks trigger financial risk contagion. Our findings demonstrate the mechanisms and pathways through which disruptions in the production layer propagate to the financial layer, highlighting the systemic risks arising from these interdependencies. We reveal the direct and indirect impacts of shocks and identify threshold for triggering systemic risk. This research provides a new framework for understanding the interaction between the real economy and the financial system.

Suggested Citation

  • Wang, Hongtao & Huang, Shupei, 2025. "Risk contagion in production-bank bilayer networks," Economics Letters, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000485
    DOI: 10.1016/j.econlet.2025.112211
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    More about this item

    Keywords

    Bilayer networks; Production networks; Bank networks; Financial contagion;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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