The Systemic Impact of Debt Default in a Multilayered Global Network Model

The Systemic Impact of Debt Default in a Multilayered Global Network Model
Author: Mr. Nathan Porter
Publisher: International Monetary Fund
Total Pages: 25
Release: 2022-09-02
Genre: Business & Economics
ISBN:

The world has become more interconnected over the past few decades. Against this backdrop, economic and financial contagion following adverse shocks can have a severe impact on the global economy. How systemic can the effects of contagion be? What specific transmission channels are involved? What is their relative importance? We address these questions using a multilayered global network model of contagion that simulates the impact of sovereign debt default on the global economy. We also develop a measure of global systemic risk and use bank stress testing techniques to quantify the systemic impact of the shock and the extent of contagion on the global economy. Our model shows that economic and financial contagion are highly non-linear, and many bystander economies can experience significant negative effects as the initial default is spread through the network. This suggests that many economies might be systemically more important than what conventional measures of size or openness might suggest.

Evolution of the Global Financial Network and Contagion: A New Approach

Evolution of the Global Financial Network and Contagion: A New Approach
Author: Ms.Yevgeniya Korniyenko
Publisher: International Monetary Fund
Total Pages: 41
Release: 2018-05-15
Genre: Business & Economics
ISBN: 1484356586

This paper studies the interconnectedness of the global financial system and its susceptibility to shocks. A novel multilayer network framework is applied to link debt and equity exposures across countries. Use of this approach—that examines simultaneously multiple channels of transmission and their important higher order effects—shows that ignoring the heterogeneity of financial exposures, and simply aggregating all claims, as often done in other studies, can underestimate the extent and effects of financial contagion.The structure of the global financial network has changed since the global financial crisis, impacted by European bank’s deleveraging and higher corporate debt issuance. Still, we find that the structure of the system and contagion remain similar in that network is highly susceptible to shocks from central countries and those with large financial systems (e.g., the USA and the UK). While, individual European countries (excluding the UK) have relatively low impact on shock propagation, the network is highly susceptible to the shocks from the entire euro area. Another important development is the rising role of the Asian countries and the noticeable increase in network susceptibility to shocks from China and Hong Kong SAR economies.

CoMap: Mapping Contagion in the Euro Area Banking Sector

CoMap: Mapping Contagion in the Euro Area Banking Sector
Author: Mehmet Ziya Gorpe
Publisher: International Monetary Fund
Total Pages: 63
Release: 2019-05-10
Genre: Business & Economics
ISBN: 1498312071

This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

What Is Real and What Is Not in the Global FDI Network?

What Is Real and What Is Not in the Global FDI Network?
Author: Jannick Damgaard
Publisher: International Monetary Fund
Total Pages: 54
Release: 2019-12-11
Genre: Business & Economics
ISBN: 1513521527

Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI. Ignoring phantom investment and allocating real investment to ultimate investors increases the explanatory power of standard gravity variables by around 25 percent.

Global Financial Stability Report, April 2010

Global Financial Stability Report, April 2010
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: INTERNATIONAL MONETARY FUND
Total Pages: 0
Release: 2010-05-20
Genre: Business & Economics
ISBN: 9781589069169

Risks to global financial stability have eased as the economic recovery has gained steam. But policies are needed to reduce sovereign vulnerabilities, ensure a smooth deleveraging process, and complete the regulatory agenda. The April 2010 Global Financial Stability Report examines systemic risk and the redesign of financial regulation; the role of central counterparties in making over-the-counter derivatives safer; and the effects of the expansion of global liquidity on receiving economies.

Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies

Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies
Author: Mr. Camilo E Tovar Mora
Publisher: International Monetary Fund
Total Pages: 33
Release: 2022-09-16
Genre: Business & Economics
ISBN:

We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.

Nonperforming Loans in Asia and Europe—Causes, Impacts, and Resolution Strategies

Nonperforming Loans in Asia and Europe—Causes, Impacts, and Resolution Strategies
Author: Asian Development Bank
Publisher: Asian Development Bank
Total Pages: 262
Release: 2021-12-01
Genre: Business & Economics
ISBN: 9292691163

High and persistent levels of nonperforming loans (NPLs) have featured prominently in recent financial crises. This book traces NPL trends during and after crises, examines the economic impact of high NPLs, and compares the effectiveness of NPL resolution strategies across economies in Asia and Europe. The book distills important lessons from the experiences of economies using case studies and empirical investigation of ways to resolve NPLs. These findings can be invaluable in charting a course through the financial and economic fallout of the coronavirus disease (COVID-19) pandemic to recovery and sustained financial stability in Asia, Europe, and beyond.

Resetting the International Monetary (Non)System

Resetting the International Monetary (Non)System
Author: José Antonio Ocampo
Publisher: Oxford University Press
Total Pages: 296
Release: 2017
Genre: Business & Economics
ISBN: 019871811X

This volume provides an analysis of the global monetary system and proposes a comprehensive yet evolutionary reform of the system aimed at creating better monetary cooperation for the twenty-first century.

Global Shocks and the New Global and Regional Financial Architecture

Global Shocks and the New Global and Regional Financial Architecture
Author: Naoyuki Yoshino
Publisher:
Total Pages: 0
Release: 2018
Genre: Business & Economics
ISBN: 9784899740698

Asian economies continue to be subject to new shocks: US monetary policy tightening, the adoption of negative-interest-rate policies by central banks all over the world, the slowdown of the People's Republic of China, and the sharp drop in oil and other commodity prices. All these highlight the vulnerability of the region to volatile trade and capital flows even as the global and Asian regional financial architecture evolves. This volume analyzes the vulnerabilities of Asian economies to external economic and financial shocks and assesses the performance of Asian regional institutions in financial surveillance and cooperation. It also evaluates ongoing reforms of the global financial architecture, including the International Monetary Fund (IMF), the Financial Stability Board, and reviews the experience of the "Troika" (European Commission, European Central Bank, and the IMF) in managing the European sovereign debt and banking crisis. Based on these, the book develops valuable recommendations to strengthen the Asian regional financial architecture and improve cooperation with global multilateral institutions.

The Oxford Handbook of the Economics of Networks

The Oxford Handbook of the Economics of Networks
Author: Yann Bramoullé
Publisher: Oxford University Press
Total Pages: 857
Release: 2016-03-01
Genre: Business & Economics
ISBN: 0190216832

The Oxford Handbook of the Economics of Networks represents the frontier of research into how and why networks they form, how they influence behavior, how they help govern outcomes in an interactive world, and how they shape collective decision making, opinion formation, and diffusion dynamics. From a methodological perspective, the contributors to this volume devote attention to theory, field experiments, laboratory experiments, and econometrics. Theoretical work in network formation, games played on networks, repeated games, and the interaction between linking and behavior is synthesized. A number of chapters are devoted to studying social process mediated by networks. Topics here include opinion formation, diffusion of information and disease, and learning. There are also chapters devoted to financial contagion and systemic risk, motivated in part by the recent financial crises. Another section discusses communities, with applications including social trust, favor exchange, and social collateral; the importance of communities for migration patterns; and the role that networks and communities play in the labor market. A prominent role of networks, from an economic perspective, is that they mediate trade. Several chapters cover bilateral trade in networks, strategic intermediation, and the role of networks in international trade. Contributions discuss as well the role of networks for organizations. On the one hand, one chapter discusses the role of networks for the performance of organizations, while two other chapters discuss managing networks of consumers and pricing in the presence of network-based spillovers. Finally, the authors discuss the internet as a network with attention to the issue of net neutrality.