Contagion in financial networks: a threat index

Gabrielle Demange (1, 2)

1 PSE - Paris-Jourdan Sciences Economiques
2 PSE - Paris School of Economics

This paper proposes to measure the spill-over effects that cross-liabilities generate on the magnitude of default in a system of financially linked institutions. Based on a simple model and an explicit criterion -the aggregate debt repayments- the measure is defined for each institution, affected by its characteristics and links to others. These measures -one for each institutionsummarize relevant information on the interaction between the liabilities structure and the shocks to resources and they can be useful to determine optimal intervention policies. The approach is illustrated to evaluate the consolidated foreign claims of 10 EU countries

Mots clés: contagion of default; financial linkages; intervention policy

Domaines: Economies et finances

Gabrielle Demange. Contagion in financial networks: a threat index. 2016. ⟨halshs-00662513v3⟩