Financial Fragility and Interbank Structure
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This paper follows Allen and Gale (2000) to model financial contagion as an equilibrium phenomenon. I assume a two-country economy where banks in each country hold interregional claims on other banks to provide insurance against liquidity preference shocks. The results completely replicate Allen-Gale model. To further test the relative robustness of different market structures I test the implication of moral hazard as in Brusco and Castiglionesi (2007). I find that under certain situation, complete and incomplete structures are equally fragile.
2007 ◽
Vol 62
(5)
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pp. 2275-2302
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2010 ◽
Vol 34
(11)
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pp. 2358-2374
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2007 ◽
Vol 24
(1)
◽
pp. 1-5
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