2012 Articles
Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk
The recent financial crisis poses the challenge to understand how systemic risk arises endogenously and what architecture can make the financial system more resilient to global crises. This paper shows that a financial network can be most resilient for intermediate levels of risk diversification, and not when this is maximal, as generally thought so far. This finding holds in the presence of the financial accelerator, i.e. when negative variations in the financial robustness of an agent tend to persist in time because they have adverse effects on the agent's subsequent performance through the reaction of the agent's counterparties.
Subjects
Files
- 10253.pdf application/pdf 803 KB Download File
Also Published In
- Title
- Journal of Economic Dynamics and Control
- DOI
- https://doi.org/10.1016/j.jedc.2012.04.001
More About This Work
- Academic Units
- Economics
- Published Here
- March 25, 2013