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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Financial fragility and distress propagation in a network of regions |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Economic Dynamics and Control |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0165-1889 |
| Volume | 62 |
| Page Range | 56 - 75 |
| Date | 2016 |
| Abstract Text | Building on previous works on business fluctuations, we model the propagation of financial distress in a network of regions, each populated by heterogeneous interacting firms and banks. In order to diversify risk, firm sell goods outside their own region and borrow from banks located there. However, this results in ties across regions which propagate financial distress across regional borders. We investigate how the average level of economic integration affects the probability of both individual and systemic failures. We find that the benefit of greater diversification is eventually offset by the effect of financial acceleration and contagion. In particular, beyond a certain level of integration the economy suffers more frequently from events with larger numbers of simultaneous failures. |
| Digital Object Identifier | 10.1016/j.jedc.2015.10.003 |
| Other Identification Number | merlin-id:13255 |
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| Keywords | Financial networks, Financial fragility, Financial contagion, Business fluctuations, Financial acceleration |