We develop an epidemiological approach to analyze how financial contagion may affect and be affected by economic activity. We show that, according to specific parameter values, the economy may converge either to a non-speculative or to a speculative equilibrium: in the former situation the level of per capita income is maximal, while in the latter it is reduced by financial contagion. The presence of economic and financial feedback effects may also give rise to macroeconomic fluctuations during the transitional path, clearly showing that such economic and financial links are an important driver of the short run macroeconomic performance. By extending the analysis to a spatial dimension, we also show that financial contagion in some specific region may propagate quickly also in regions far away from those in which the contagion initially occurs, highlighting the role of regional policy coordination to avoid interregional contagion.

Financial contagion and economic development: An epidemiological approach / A. Bucci, D. La Torre, D. Liuzzi, S. Marsiglio. - In: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION. - ISSN 0167-2681. - 162:(2019 Jun), pp. 211-228. [10.1016/j.jebo.2018.12.018]

Financial contagion and economic development: An epidemiological approach

A. Bucci
Primo
;
D. La Torre
Secondo
;
D. Liuzzi
;
2019-06

Abstract

We develop an epidemiological approach to analyze how financial contagion may affect and be affected by economic activity. We show that, according to specific parameter values, the economy may converge either to a non-speculative or to a speculative equilibrium: in the former situation the level of per capita income is maximal, while in the latter it is reduced by financial contagion. The presence of economic and financial feedback effects may also give rise to macroeconomic fluctuations during the transitional path, clearly showing that such economic and financial links are an important driver of the short run macroeconomic performance. By extending the analysis to a spatial dimension, we also show that financial contagion in some specific region may propagate quickly also in regions far away from those in which the contagion initially occurs, highlighting the role of regional policy coordination to avoid interregional contagion.
Diffusion; Economic fluctuations; Economic growth; Financial contagion
Settore SECS-P/01 - Economia Politica
Settore SECS-S/06 - Metodi mat. dell'economia e Scienze Attuariali e Finanziarie
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2434/628207
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