ECB paper presents new model for ‘fire sale’ contagion

ECB headquarters

A working paper published by the European Central Bank presents a new model to look at the risk of contagion caused by “fire sales” of distressed financial firms’ assets.

In Simulating fire sales in a system of banks and asset managers, Susanna Calimani, Grzegorz Hałaj and Dawid Żochowski develop an agent-based model. Their paper introduces a market-clearing mechanism where asset prices are endogenously formed.

They find that banks which are active in both the interbank and securities markets

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