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International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks

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  • Escaith, Hubert
  • Gonguet, Fabien

Abstract

The 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 of intermediate goods or client for their own production, an exogenous 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 input-output interactions. The paper indicates that 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 by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15558.

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Date of creation: May 2009
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Handle: RePEc:pra:mprapa:15558

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Related research

Keywords: international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables;

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References

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  1. Repullo, Rafael & Suarez, Javier, 2008. "The Procyclical Effects of Basel II," CEPR Discussion Papers 6862, C.E.P.R. Discussion Papers.
  2. Peter Neary, 2009. "Putting the "New" into New Trade Theory: Paul Krugman's Nobel Memorial Prize in Economics," Economics Series Working Papers 423, University of Oxford, Department of Economics.
  3. Pula, Gabor & Peltonen, Tuomas A., 2009. "Has emerging Asia decoupled? An analysis of production and trade linkages using the Asian international input-output table," Working Paper Series 0993, European Central Bank.
  4. Inomata, Satoshi, 2008. "A New Measurement for International Fragmentation of the Production Process: An International Input-Output Approach," IDE Discussion Papers 175, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  5. Christos T. Papadas & Dale C. Dahl, 1999. "Supply-Driven Input-Output Multipliers," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 269-285.
  6. Guillaume Daudin & Paola Monperrus-Veroni & Christine Rifflart & Danielle Schweisguth, 2006. "Le commerce extérieur en valeur ajoutée," Revue de l'OFCE, Presses de Sciences-Po, vol. 98(3), pages 129-165.
  7. Guillaume Daudin & Paola Veroni & Christine Rifflart & Danielle Schweisguth, 2006. "Le commerce extérieur en valeur ajoutée," Sciences Po publications info:hdl:2441/2537, Sciences Po.
  8. Mika Saito, 2004. "Armington elasticities in intermediate inputs trade: a problem in using multilateral trade data," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 1097-1117, November.
  9. Mika Saito, 2004. "Armington Elasticities in Intermediate Inputs Trade," IMF Working Papers 04/22, International Monetary Fund.
  10. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  11. repec:spo:wpecon:info:hdl:2441/2537 is not listed on IDEAS
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Citations

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Cited by:
  1. Jinjarak, Yothin, 2013. "Supply Chains and Credit-Market Shocks: Some Implications for Emerging Markets," ADBI Working Papers 443, Asian Development Bank Institute.
  2. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession," MPRA Paper 18433, University Library of Munich, Germany.
  3. Porzecanski, Arturo C., 2009. "Latin America: The Missing Financial Crisis," MPRA Paper 18780, University Library of Munich, Germany.
  4. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International Supply Chains and Trade Elasticity in Times of Global Crisis," MPRA Paper 20478, University Library of Munich, Germany.
  5. Ricardo Argüello C.a, 2009. "Latin America and the international economic CRISIS: THE TRADE CHANNEL," ECONOMÍA, GESTIÓN Y DESARROLLO 009340, UNIVERSIDAD JAVERIANA - CALI.
  6. Georgescu, George, 2013. "România în perioada post-criză: investiţiile străine directe şi efecte asupra echilibrului financiar extern
    [Romania in post-crisis period: foreign direct investments and effects on external
    ," MPRA Paper 46531, University Library of Munich, Germany.

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