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Production and Financial Networks in Interplay

Author

Listed:
  • Kenan Huremović
  • Gabriel Jiménez
  • Enrique Moral-Benito
  • José-Luis Peydró
  • Fernando Vega-Redondo

Abstract

We show that bank shocks to firms propagate along the production network with stronger upstream than downstream effects. Our identification relies on (i) administrative datasets from Spain covering supplier-customer transactions and bank loans, (ii) bank credit supply shocks from the global financial crisis, and (iii) a general equilibrium model of a production network with financial frictions, estimated structurally. We find network propagation amplifies the impact of bank shocks on GDP growth by nearly 50 percent. Moreover, bank shocks to firms' distant suppliers and customers contribute similarly to this aggregate effect as bank shocks to firms' direct customers and suppliers.

Suggested Citation

  • Kenan Huremović & Gabriel Jiménez & Enrique Moral-Benito & José-Luis Peydró & Fernando Vega-Redondo, 2026. "Production and Financial Networks in Interplay," American Economic Review, American Economic Association, vol. 116(5), pages 1611-1647, May.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:5:p:1611-47
    DOI: 10.1257/aer.20201088
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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