Financial Contagion.¶
Allen, F., & Gale, D. (2000). Financial Contagion. Journal of Political Economy, 108(1), 1-33.
Cited by¶
5 citations across 5 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Associative Property Transfer
- In financial markets it is contagion: a default or stress event in one institution transfers across counterparty and perceived-similarity links to others whose fundamentals are unchanged, with sovereign-debt crisis propagation sharing the shape.
This sourceModels contagion across counterparty links, the warranted-causal case where a stress event propagates along network edges (distinct from propagation along mere perceived-similarity links).
- In financial markets it is contagion: a default or stress event in one institution transfers across counterparty and perceived-similarity links to others whose fundamentals are unchanged, with sovereign-debt crisis propagation sharing the shape.
- Defect
- And in markets, a single mispriced asset or fraudulent institution can propagate consequences through a trading structure that assumed integrity.
This sourceModels how a small, localized liquidity shock at one institution propagates by contagion through the network of interbank claims, dictating system-wide outcomes out of proportion to its origin — a localized deviation propagating through a structure that assumed integrity.
- And in markets, a single mispriced asset or fraudulent institution can propagate consequences through a trading structure that assumed integrity.
- Propagation
- Economics & supply chains: Market contagion and financial panic, shock propagation through supply networks (demand shocks, bottleneck amplification), innovation diffusion in industries, price discovery and information aggregation in markets, trade-network effects, as Allen and Gale (2000) formalize for interbank claim structures and equilibrium contagion.
This sourceSeminal model of contagion through interbank claims: a localized liquidity shock propagates across the network of exposures into system-wide crisis, with risk depending on the topology of linkages rather than any single bank's soundness; supports the definition of systemic risk and the counterparty/fire-sale propagation example.
- Economics & supply chains: Market contagion and financial panic, shock propagation through supply networks (demand shocks, bottleneck amplification), innovation diffusion in industries, price discovery and information aggregation in markets, trade-network effects, as Allen and Gale (2000) formalize for interbank claim structures and equilibrium contagion.
- Systemic Risk
- The essential commitment is the emergence of whole-system failure from local failure: dense interdependence converts a localized shock into a cascading, correlated collapse that no single actor's prudence can prevent.
This sourceSeminal model of contagion through interbank claims: a localized liquidity shock propagates across the network of exposures into system-wide crisis, with risk depending on the topology of linkages rather than any single bank's soundness; supports the definition of systemic risk and the counterparty/fire-sale propagation example.
- The essential commitment is the emergence of whole-system failure from local failure: dense interdependence converts a localized shock into a cascading, correlated collapse that no single actor's prudence can prevent.
- Teleconnection
- The mechanism-versus-correlation distinction at issue here is the same one Allen and Gale (2000) developed in their model of financial contagion, where the sufficient condition for true contagion is a specifiable transmission channel rather than mere co-movement.
This sourceSeminal model of contagion through interbank claims: a localized liquidity shock propagates across the network of exposures into system-wide crisis, with risk depending on the topology of linkages rather than any single bank's soundness; supports the definition of systemic risk and the counterparty/fire-sale propagation example.
- The mechanism-versus-correlation distinction at issue here is the same one Allen and Gale (2000) developed in their model of financial contagion, where the sufficient condition for true contagion is a specifiable transmission channel rather than mere co-movement.
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