An Analysis of Residual Financial Contagion in Romania’s Banking Market for Mortgage Loans

Abstract

The uncertainty of the environment, the complexity of economic systems, both at the national and global economy levels, and the digital age and artificial intelligence draw attention to the existence or appearance of systemic, disruptive phenomena that can appear and propagate in different forms, producing effects that can turn into economic crises. These phenomena can be transmitted like a domino effect, and they are referred to as the contagion effect in the scientific literature. In this research, one of the four forms of financial contagion, known as residual contagion, is studied on the mortgage loan market in Romania using agent-based modeling. By considering the economic crisis of 2007–2009, also supported by the mortgage crisis, in the present paper, we aim to study the Romanian mortgage market in 2022 through the use of machine learning techniques and agent-based modeling. The purpose of this research is to capture the potential systemic risks that can outline a residual financial contagion effect. The simulation results highlight the fact that the degree of connectivity between the commercial banks in Romania and the way in which they are interconnected have a major importance in the emergence and propagation of contagion effects. The proposed approach and the obtained results can offer more insight to policymakers on how the contagion effect takes place within the banking sector.

Toward Sustainable Development: Assessing the Effects of Financial Contagion on Human Well-Being in Romania

“…In the context of environmental uncertainty, the complexity of economic systems at both the national and global levels, and the digital age and artificial intelligence, attention is drawn to the existence or emergence of disruptive systemic phenomena that can manifest and propagate in various forms, giving rise to effects that may evolve into economic crises. Ionescu et al (2023) described the four types of financial contagion in their research and particularly analyzed how residual contagion is formed and can propagate. They examined the mortgage loan market in Romania and highlighted the systemic risks that can generate a residual contagion effect.…”

“…Financial contagion represents a phenomenon in which an event or change in one financial market can have chain effects and spread to other markets or economies. It can have significant consequences for financial and economic stability (Gajurel and Dungey 2023;Ionescu et al 2023). However, assessing human well-being is essential for understanding the quality of life in a particular country or region.…”

“…The main objective of the paper is to analyze the impact of financial contagion on Romania's financial stability, with broader implications for the country's well-being and economic growth. The rationale behind this objective is that Romania, as a member of the European Union, has become part of a larger financial and economic market, which can increase both opportunities and vulnerabilities to global financial risks (Ibinceanu et al 2021;Vâlsan et al 2023;Ionescu et al 2023;Nica et al 2021). The banking sector in Romania has undergone significant changes in recent years, and these changes could influence how the country responds to the effects of financial contagion.…”

Quantitative Modeling of Financial Contagion: Unraveling Market Dynamics and Bubble Detection Mechanisms

“…According to Ionescu et al (2023), Gajurel and Dungey (2023), and Chirit , ă et al ( 2023), financial contagion is a phenomenon wherein an occurrence or alteration in one financial market can trigger chain reactions and disseminate to other markets or economies. This can yield noteworthy ramifications for financial and economic stability.…”

Unraveling the Impact of Lockdowns on E-commerce: An Empirical Analysis of Google Analytics Data during 2019–2022

“…The COVID-19 pandemic emerged suddenly and somehow unexpectedly and heavily influenced human habits and lifestyle as it imposed reduced mobility and shopping, leading the population to use delivery services and buy online. The population learned that buying online brings more time and the habit that was accentuated in pandemic times persisted even after the COVID-19 pandemic diminished its effects [1][2][3]. According to several sources [4][5][6], the COVID-19 pandemic has changed consumer behavior in several ways: (a) consumers have become more focused on their basic needs and hygiene products while reducing spending on non-essential items [5,6]; (b) consumers have developed a "buy local" trend to support their communities and reduce environmental impact [5]; (c) consumers have increased their online shopping and delivery services while avoiding physical stores and crowded places [6][7][8]; (d) consumers have experienced more anxiety and stress, which may have led to compulsive or erratic buying behaviors [4].…”