International Supply Chains as Real Transmission Channels of Financial Shocks
AbstractThe article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier or client, a financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling international input-output interactions. When banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology on the USA and 9 developed and developing Asian economies.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 31 (2011)
Issue (Month): ()
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international supply chains; monetary circuit; real linkages; transmission channels; financial shock; Input-Output;
Find related papers by JEL classification:
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G01 - Financial Economics - - General - - - Financial Crises
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Diakantoni, Antonia & Escaith, Hubert, 2012. "Reassessing effective protection rates in a trade in tasks perspective: Evolution of trade policy in "Factory Asia"," MPRA Paper 41723, University Library of Munich, Germany.
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