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Does trust among banks matter for bilateral trade? Evidence from shocks in the interbank market

Author

Listed:
  • Silvia Del Prete

    (Bank of Italy)

  • Stefano Federico

    (Bank of Italy)

Abstract
Do financial crises have an impact on trade flows via a shock to corporate risk or to bank risk? Focusing on Italy’s exports during a period characterized by both the global financial crisis and by the sovereign debt crisis, we exploit the prediction of standard trade models according to which financial shocks should be magnified by the time needed to ship a good to the importer’s country and by sector-level financial vulnerability. We also use bank-pair data on Italian banks’ assets and liabilities vis-à-vis their foreign bank counterparts in a specific country to construct proxies for the availability of trade finance in a given market. We find evidence of a negative impact of financial shocks on exports, especially to more distant countries and in more financially vulnerable sectors. The main channels seem to be mainly related to an increase in corporate risk (reflecting shocks to bank finance and to buyer-supplier trade credit), while the ‘contagion effect’ of shocks stemming from bank risk seems to be much less significant.

Suggested Citation

  • Silvia Del Prete & Stefano Federico, 2019. "Does trust among banks matter for bilateral trade? Evidence from shocks in the interbank market," Temi di discussione (Economic working papers) 1217, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1217_19
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2019/2019-1217/en_tema_1217.pdf
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    References listed on IDEAS

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    Cited by:

    1. Markus Merz, 2021. "Contemporaneous financial intermediation," Digital Finance, Springer, vol. 3(1), pages 25-44, March.

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    More about this item

    Keywords

    bilateral trade; interbank markets; counterparty risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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