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Tracing the Impact of a Sudden Stop: The Role of Bank Rollover Risks, Expectations, and Domestic Production Networks

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Listed:
  • Salih Fendoglu
  • Steven Ongena

Abstract

We show that ex-ante higher bank rollover risks in international wholesale markets and more pessimistic bank expectations about future foreign funding conditions significantly amplify the reduction in bank credit supply after a sudden stop. Moreover, the reduction in bank credit supply has cascading real effects through domestic production networks, amplifying the effect of credit crunch on investment. The mechanism is that suppliers ex-ante working more with global-liquidity-reliant banks reduce their supply of inputs to their downstream firms more after the sudden stop. For identification, we study comprehensive micro-level databases from Turkey, and exploit the sudden stop around “Lehman”.

Suggested Citation

  • Salih Fendoglu & Steven Ongena, 2018. "Tracing the Impact of a Sudden Stop: The Role of Bank Rollover Risks, Expectations, and Domestic Production Networks," Working Papers 1818, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1818
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2018/18-18
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    More about this item

    Keywords

    Sudden stop; Credit supply channel; Domestic production networks; Emerging market economies;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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