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

Hubert Escaith and Fabien Gonguet

MPRA Paper from University Library of Munich, Germany

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 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.

Keywords: international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables (search for similar items in EconPapers)
JEL-codes: C67 F23 F36 G1 L16 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-cba and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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https://mpra.ub.uni-muenchen.de/15558/1/MPRA_paper_15558.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/18432/1/MPRA_paper_18432.pdf revised version (application/pdf)

Related works:
Working Paper: International trade and real transmission channels of financial shocks in globalized production networks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15558

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