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Dong Beom Choi
''Contagious Runs: Who Initiates?''
( 2016, Vol. 36 No.1 )
This paper presents a model of contagious panic between two regions with heterogeneous fragilities. When there is no strategic risk, the spillover is always one-directional; the contagion can only originate from the fundamentally weaker region spilling over to the stronger. When strategic risks due to strategic complementarities cause a self-fulfilling panic, the direction of the contagion could be reversed; panic in the stronger region could generate a contagious panic in the weaker. We show that this depends on the difference in severity of coordination problems between the two regions and the scale of potential spillovers.
Keywords: Contagion, Self-fulfilling panic, Global games, Network
JEL: D8 - Information, Knowledge, and Uncertainty: General
G2 - Financial Institutions and Services: General
Manuscript Received : Jan 29 2016 Manuscript Accepted : Feb 21 2016

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