International Supply Chains as Real Transmission Channels of Financial Shocks
Capco Institute Journal of Financial Transformation, Vol. 31, pp. 83-97, March 2011
17 Pages Posted: 25 Nov 2011
Date Written: March 24, 2011
Abstract
The article analyzes the role of international supply chains as transmission channels of a financial shock. In these production networks, individual firms 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, with potential disruption effects. A resonance effect amplifies the back and forth interaction between real and monetary circuits when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and their assets are priced to market. The transmission of the initial financial shock through real channels is tracked by modeling supply-driven international input-output interactions. The paper applies the proposed methodology on an illustrative set of interconnected economies: the U.S. and nine developed and developing Asian countries.
Keywords: international trade, supply chains, monetary circuit, real linkages, transmission channels of financial shock, International Input-Output Tables
JEL Classification: C67, F23, F36, G01, L16
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun
By Andrei A. Levchenko, Logan T. Lewis, ...
-
By Mary Amiti and David E. Weinstein
-
By Mary Amiti and David E. Weinstein
-
Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis
By Davin Chor and Kalina Manova
-
Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis
By Davin Chor and Kalina Manova
-
Trade and the Global Recession
By Jonathan Eaton, Samuel S. Kortum, ...
-
Trade and the Global Recession
By Jonathan Eaton, Samuel S. Kortum, ...