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Saed Khalil, Stephen Kinsella (2015) Bad banks choking good banks: simulating balance sheet contagion”, European Journal of Economics and Economic Policies: Intervention, vol. 12, n. 1, pp. 51-72
Abstract: We investigate the propagation of contagion through banks’ balance sheets in a two-country model. We simulate an increase in non-performing loans in one bank, and study the effects on other banks and the macro-economy of each country. We show that credit crunches destabilize each economy in the short run and in the long run reduce potential output. We quantify this loss.