Economics, Econometrics and Finance
4 years ago

Financial networks' hidden fragility could trigger widespread economic collapse.

Proceedings of the Royal Society A Mathematical Physical and Engineering Sciences
Contagion in financial networks
Prasanna Gai, Sujit Kapadia

Paper Summary

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The article explores how financial networks can spread problems when faced with shocks. It shows that even though the chance of this happening is low, the impact can be huge. Changes in the network structure and market liquidity can affect how widespread the effects are. The financial system can handle big shocks, but this doesn't mean it will always be able to do so in the future.