An Agent-based Model of Contagion in Financial Networks

Abstract

This work develops an agent-based model for the study of how the leverage through the use of repurchase agreements can function as a mechanism for the propagation and amplification of financial shocks in a financial system. Based on the analysis of financial intermediaries in the repo and interbank lending markets during the 2007-08 financial crisis we develop a model that can be used to simulate the dynamics of financial contagion.