Abstract
We use networks with power law degree distributions to build stylistic models of interbank financial interactions, and employ computer simulations to study progression of financial contagion through these networks. We find that power law networks are more resilient than Erdos-Renyi networks to random financial shocks. Power law networks are more vulnerable to targeted shocks than to random shocks. We also study the effect of average node degree, interbank asset ratio, and capital buffer ratio on the extent of financial contagion.
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