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

  • Escaith, Hubert
  • Gonguet, Fabien

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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File URL: http://mpra.ub.uni-muenchen.de/15558/1/MPRA_paper_15558.pdf
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File URL: http://mpra.ub.uni-muenchen.de/18432/1/MPRA_paper_18432.pdf
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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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  1. J. Peter Neary, 2009. "Putting the "New" into New Trade Theory: Paul Krugman's Nobel Memorial Prize in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 217-250, 06.
  2. Repullo, Rafael & Suarez, Javier, 2008. "The Procyclical Effects of Basel II," CEPR Discussion Papers 6862, C.E.P.R. Discussion Papers.
  3. Christos T. Papadas & Dale C. Dahl, 1999. "Supply-Driven Input-Output Multipliers," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 269-285.
  4. 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.
  5. 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).
  6. Mika Saito, 2004. "Armington Elasticities in Intermediate Inputs Trade: A Problem in Using Multilateral Trade Data," IMF Working Papers 04/22, International Monetary Fund.
  7. 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.
  8. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  9. repec:spo:wpecon:info:hdl:2441/2537 is not listed on IDEAS
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