The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Yevgeniya Korniyenko, Manasa Patnam, Rita Maria del Rio-Chanon, and Mason Porter
INTERNATIONAL MONETARY FUND
This paper studies the interconnectedness of the global financial system and its susceptibility
to shocks. A novel multilayer network framework is applied to link debt and equity
exposures across countries. Use of this approach-that examines simultaneously multiple
channels of transmission and their important higher order effects-shows that ignoring the
heterogeneity of financial exposures, and simply aggregating all claims, as often done in
other studies, can underestimate the extent and effects of financial contagion.The structure of
the global financial network has changed since the global financial crisis, impacted by
European bank's deleveraging and higher corporate debt issuance. Still, we find that the
structure of the system and contagion remain similar in that network is highly susceptible to
shocks from central countries and those with large financial systems (e.g., the USA and the
UK). While, individual European countries (excluding the UK) have relatively low impact on
shock propagation, the network is highly susceptible to the shocks from the entire euro area.
Another important development is the rising role of the Asian countries and the noticeable
increase in network susceptibility to shocks from China and Hong Kong SAR economies.