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International Supply Chains as Real Transmission Channels of Financial Shocks

Author

Listed:
  • Escaith, Hubert

    () (World Trade Organization)

  • Gonguet, Fabien

    () (Ecole Polytechnique-ENSAE)

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 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.

Suggested Citation

  • Escaith, Hubert & Gonguet, Fabien, 2011. "International Supply Chains as Real Transmission Channels of Financial Shocks," Journal of Financial Transformation, Capco Institute, vol. 31, pages 83-97.
  • Handle: RePEc:ris:jofitr:1446
    as

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    Citations

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    Cited by:

    1. Vivek Kandiah & Hubert Escaith & Dima L. Shepelyansky, 2015. "Google matrix of the world network of economic activities," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 88(7), pages 1-20, July.
    2. Hubert Escaith, 2014. "Mapping global value chains and measuring trade in tasks," Chapters,in: Asia and Global Production Networks, chapter 9, pages 287-337 Edward Elgar Publishing.
    3. Diakantoni, Antonia & Escaith, Hubert, 2012. "Reassessing effective protection rates in a trade in tasks perspective: Evolution of trade policy in factory Asia," WTO Staff Working Papers ERSD-2012-13, World Trade Organization (WTO), Economic Research and Statistics Division.
    4. ITO Yukiko, 2017. "Has the Offshore Service Network Been Expanded by Japanese Firms?," Discussion papers 17107, Research Institute of Economy, Trade and Industry (RIETI).
    5. V. Kandiah & H. Escaith & D. L. Shepelyansky, 2015. "Contagion effects in the world network of economic activities," Papers 1507.03278, arXiv.org.

    More about this item

    Keywords

    international supply chains; monetary circuit; real linkages; transmission channels; financial shock; Input-Output;

    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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