ContagionGraphs a Tool for Network-Based Models of Financial Contagion

Abstract

Financial contagion is explored in a large and growing number of network-based models with a high variety of assumptions on network geometry, bank balance sheets, loan settlement, etc. In this paper, we present “ContagionGraphs”, a tool for researches to explore the seemingly endless possibilities in network-based models of financial contagion. We showcase its abilities by reproducing and extending on hallmark papers in the field such as Allen and Gale (2000), Nier et al. (2007) and Acemoglu et al. (2015). On top of the predominant analysis of average default ratios in average node degrees, we show that the net credit position of the shocked bank is a strong predictor of network stability and that equity and liquidity are substitutes for interbank network stability.

Keywords: Financial Contagion, Network Based Models, Interbank Markets, Liquidity, Equity

JEL Classification: G01, G17, G21