Journal of Economic Interaction and Coordination

, Volume 10, Issue 2, pp 287–304 | Cite as

Markets connectivity and financial contagion

  • Ruggero Grilli
  • Gabriele Tedeschi
  • Mauro Gallegati
Regular Article


In this paper we investigate the sources of instability in credit and financial systems and the effect of credit linkages on the macroeconomic activity. By developing an agent-based model, we analyze the evolving dynamics of the economy as a complex, adaptive and interactive system, which allows us to explain some key events that occurred during the recent economic and financial crisis. In particular, we study the repercussions of inter-bank connectivity on banks’ performances, bankruptcy waves and business cycle fluctuations. Interbank linkages, in fact, not only allow participants to share risk but also create potential for one bank’s crisis to spread through the network. The purpose of the model is, therefore, to build up the dependence among agents at the micro-level and to estimate their impact on the macro stability.


Systemic risk Business cycle Volatility Network connectivity  Giant component 



For valuable comments and without implicating for any errors, we thank participants at the 17th Workshop on Economics and Heterogeneous Interacting Agents, June 21–23 2012, University of Pantheon-Assas, Paris II. The research leading to these results has received funding from the European Union, Seventh Framework Programme FP7/2007–2013 under Grant Agreement No. CRISIS-ICT-2011-288501.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Ruggero Grilli
    • 1
  • Gabriele Tedeschi
    • 1
  • Mauro Gallegati
    • 1
  1. 1.Polytechnic University of MarcheAnconaItaly

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