Financial Contagion in the Laboratory: Does Network Structure Matter?

Duffy, John, Karadimitropoulou, Aikaterini and Parravano, Melanie (2019) Financial Contagion in the Laboratory: Does Network Structure Matter? Journal of Money, Credit and Banking, 51 (5). pp. 1097-1136. ISSN 0022-2879

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Abstract

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
Related URLs:
Depositing User: LivePure Connector
Date Deposited: 26 Sep 2018 14:30
Last Modified: 19 May 2020 00:04
URI: https://ueaeprints.uea.ac.uk/id/eprint/68365
DOI: 10.1111/jmcb.12563

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