Skip to Main content Skip to Navigation
Preprints, Working Papers, ...

Shock Diffusion in Regular Networks: The Role of Transitive Cycles MPRA Paper 86267, University Library of Munich, Germany

Abstract : We study how the presence of transitive cycles in the interbank network affects the extent of financial contagion. In a regular network setting, where the same pattern of links repeats for each node, we allow an external shock to propagate losses through the system of linkages (interbank network). The extent of contagion (contagiousness) of the network is measured by the limit of the losses when the initial shock is diffused into an infinitely large network. This measure indicates how a network may or may not facilitate shock diffusion in spite of other external factors.\r\nOur analysis provides two main results. First, contagiousness decreases as the length of the minimal transitive cycle increases, keeping the degree of connectivity (density) constant. Secondly, as density increases the extent of contagion can decrease or increase, because the addition of new links might decrease the length of the minimal transitive cycle. Our results provide new insights to better understand systemic risk and could be used to build complementary indicators for financial regulation.
Document type :
Preprints, Working Papers, ...
Complete list of metadata

https://hal.archives-ouvertes.fr/hal-02273935
Contributor : Sophie Elorri Connect in order to contact the contributor
Submitted on : Thursday, August 29, 2019 - 1:58:06 PM
Last modification on : Friday, August 30, 2019 - 1:07:46 AM

Identifiers

  • HAL Id : hal-02273935, version 1

Collections

Citation

Noémi Navarro, H. Dan Tran. Shock Diffusion in Regular Networks: The Role of Transitive Cycles MPRA Paper 86267, University Library of Munich, Germany. 2018. ⟨hal-02273935⟩

Share

Metrics

Record views

28