IDEAS home Printed from https://ideas.repec.org/p/red/sed018/91.html
   My bibliography  Save this paper

Financial Shocks Propagation and International Trade Linkages

Author

Listed:
  • Sihao Chen

    (Hong Kong Univ of Science and Technology)

Abstract

We use the production network approaches to show that the shocks on U.S. sectoral financing cost propagate through international trade linkages and drive the business cycles of Mexico. We take three steps to reach this conclusion. First, using a simple three-sector two-country model, we analytically show that U.S. financial shocks influence Mexican sectoral value-added by two channels. The price effect propagates through Mexican import network while the demand effect propagates through Mexican export network. Both effects transmit further via Mexican domestic production network. Secondly, utilizing a multiple-industry two-country model, we conduct structural factor model analysis and find that external financial shocks account for around 19% of the volatility of Mexico domestic output. Illustrated by impulse response functions, the demand effect dominates in the short run. Thirdly, employing the methodology in Acemoglu, Akcigit and Kerr (2016) to construct the "network effect" of shocks, we empirically test the role of trade linkages. The evidence on demand effect is prevalent but the evidence on price effect is mixed. More importantly, the interest-rate-driven demand effect not only propagate through Mexico export network but also transmit upward in Mexican domestic supply chain.

Suggested Citation

  • Sihao Chen, 2018. "Financial Shocks Propagation and International Trade Linkages," 2018 Meeting Papers 91, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:91
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2018/paper_91.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed018:91. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.