International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks
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 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15558.
Date of creation: May 2009
Date of revision:
international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-17 (All new papers)
- NEP-CBA-2009-06-17 (Central Banking)
- NEP-SEA-2009-06-17 (South East Asia)
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