In this paper, we develop an agent-based model of the interbank market that proceeds along two main dimensions. In the frrst step, we simulate a network calibrated on a size distribution of heterogenous banks as well as known topological properties of the short-term interbank money market. Within this layer, bilateral exposures comprise the interdependencies between banks. In order to allow for fire sale contagion occurring due to correlated asset portfolios, we introduce a second network layer whereby bank interdependencies correspond to the degree of overlap between their derivatives portfolios. Taking the network as given, we launch a bank balance-sheet based agent-based model in which exogenous liquidity shocks drive banks' aggregate activities and endogenous trust drives their behaviour vis-à-vis one another.
|Publication status||In preparation - 2014|