Financial Contagion in the Laboratory: Does Network Structure Matter?

Duffy, John, Karadimitropoulou, Aikaterini and Parravano, Melanie (2018) Financial Contagion in the Laboratory: Does Network Structure Matter? Journal of Money, Credit and Banking. ISSN 0022-2879

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    We explore the role of interbank network structure and premature liquidation costs for the likelihood of financial contagions in a laboratory experiment. We consider complete versus incomplete networks of banks linked together by interbank deposits, and we further vary premature liquidation costs. Subjects play the role of depositors deciding whether or not to withdraw funds from their interconnected bank. We find that when liquidation costs are high, a complete network structure is significantly less vulnerable to financial contagions than an incomplete network structure. However, when liquidation costs are low, network structure is less important for the frequency of financial contagions.

    Item Type: Article
    Uncontrolled Keywords: bank runs,contagion,networks,interbank deposits,financial fragility,experiments
    Faculty \ School: Faculty of Social Sciences > School of Economics
    Depositing User: LivePure Connector
    Date Deposited: 26 Sep 2018 15:30
    Last Modified: 09 Apr 2019 13:46
    DOI: 10.1111/jmcb.12563

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