Understanding Financial Contagion: Insights Into Transmission Mechanisms and Their Contribution in Shock Intensification

Boshkoska, Meri and Odzaklieska, Dragica and Spaseska, Tatjana (2024) Understanding Financial Contagion: Insights Into Transmission Mechanisms and Their Contribution in Shock Intensification. Balkan and Near Eastern Journal of Social Sciences, 10 (01). pp. 119-125. ISSN 2149-9314

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Abstract

The main goal of this paper is to identify and analyze the key mechanisms that can lead to financial contagion and
their function in the dissemination of shocks within the financial system.
The key mechanisms discussed in the paper include interbank lending, bank runs, asset price contagion, the role of
asymmetric information, moral hazard and heard behavior among the investors. By exploring these mechanisms, the paper seeks to enhance the understanding of how shocks are transmitted and intensified within the financial system. To achieve the aim of this paper, secondary research was conducted, utilizing relevant research papers, conference papers, open-access
materials, and study reports relating to the research topic.
The findings draw attention to the possibility of banking system contagion effects, especially due to interbank credit
exposures, which might affect a small number of banks and potentially spread to a large amount of the system. The incidence of bank runs, which are brought on by economic instability and a lack of faith in the banking system, worsens the spread of shocks. Additionally, the spread of contagion, which results in market crashes and price spillovers, can be aided by investor herding behavior and confusion brought on by asymmetric information.

Item Type:	Article
Subjects:	Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions:	Faculty of Economics
Depositing User:	Efp Eprints
Date Deposited:	05 Jun 2024 08:09
Last Modified:	05 Jun 2024 08:09
URI:	https://eprints.uklo.edu.mk/id/eprint/10036

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