Before revision: In this paper we will consider a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities . Emphasis will be placed on the construction, existence, and uniqueness of the continuous-time framework and its formulation as a differential equation driven by the operating cash flows. Finally, the financial implications of time dynamics will be considered.
After revision: In this paper we will consider a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities , including a dynamic examination of default risk. Such a system allows us to distinguish between defaults resulting from either insolvency or illiquidity, and to analyze the resulting effects on the financial implications of time dynamics will be considered.