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Modelling Interconnections in the Global Financial System in the Light of Systemic Risk

Author

Listed:
  • Tomáš Klinger

    (Charles University in Prague/Institute of Economic Studies)

  • Petr Teply

    (University of Economics in Prague/Faculty of Finance and Accounting)

Abstract

In this paper, we focus on the link between systemic risk and sovereign crises. We model how state support may influence a distressed financial system on an agent-based network model calibrated to 4Q 2011 data collected from several sources. Our model contributes methodologically to agent-based modelling of banking networks’ systemic stability by adding the sovereign sector and the mechanisms of risk transfer between the banks and the sovereigns when state aid is initiated. The model implements two types of state support to banks, bailouts and asset relief. We show that these two have different effect on systemic stability, but both mitigate the systemic crisis in the short run. How the state aid measures are efficient in the long run depends on the model’s parameterization.

Suggested Citation

  • Tomáš Klinger & Petr Teply, 2014. "Modelling Interconnections in the Global Financial System in the Light of Systemic Risk," ACTA VSFS, University of Finance and Administration, vol. 8(1), pages 64-88.
    • Handle: RePEc:prf:journl:v:8:y:2014:i:1:p:64-88
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    References listed on IDEAS

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    Cited by:

    1. Tomas Klinger & Petr Teply, 2017. "Agent-Based Risk Assessment Model of the European Banking Network," CERGE-EI Working Papers wp602, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    Keywords

    agent-based models; bailout; contagion; financial crises; financial stability; liquidity risk; network models; systemic risk;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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