Structural contagion and vulnerability to unexpected liquidity shortfalls

Simone Giansante, Carl Chiarella, Serena Sordi, Alessandro Vercelli

Research output: Contribution to journalArticle

9 Citations (Scopus)
84 Downloads (Pure)

Abstract

This paper assumes that financial fluctuations are the result of the dynamic interaction between liquidity and solvency conditions of individual economic units. The framework is an extention of Sordi and Vercelli (this issue) designed as an heterogeneous agent model which proceeds through discrete time steps within a finite time horizon. The interaction at the micro-level between economic units monitors the spread of contagion and systemic risk, producing interesting complex dynamics. The model is analyzed by means of numerical simulations and systemic risk modelling, where local interaction of units is captured and analysed by the bilateral provision of liquidity among units. The behavior and evolution of economic units are studied for different parameter regimes in order to investigate the relation between units' expectations, liquidity regimes and contagion. Liquidity policy implications are briefly discussed.
Original languageEnglish
Pages (from-to)558–569
JournalJournal of Economic Behavior and Organization
Volume83
Issue number3
Early online date30 May 2012
DOIs
Publication statusPublished - Aug 2012

Fingerprint

Liquidity
Contagion
Vulnerability
Economics
Systemic risk
Interaction
Banking risk
Complex dynamics
Discrete-time
Local interaction
Solvency
Heterogeneous agents
Numerical simulation
Policy implications
Fluctuations
Time horizon
Bilateral
Modeling

Keywords

  • financial fluctuations
  • contagion
  • systemic risk
  • heterogeneous agents
  • complex dynamics

Cite this

Structural contagion and vulnerability to unexpected liquidity shortfalls. / Giansante, Simone; Chiarella, Carl; Sordi, Serena; Vercelli, Alessandro.

In: Journal of Economic Behavior and Organization, Vol. 83, No. 3, 08.2012, p. 558–569.

Research output: Contribution to journalArticle

Giansante, Simone ; Chiarella, Carl ; Sordi, Serena ; Vercelli, Alessandro. / Structural contagion and vulnerability to unexpected liquidity shortfalls. In: Journal of Economic Behavior and Organization. 2012 ; Vol. 83, No. 3. pp. 558–569.
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