Cross-Sector Interactions in Western Europe: Lessons From Trade Credit Data

Mélina London

No 2212, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: Large-scale analyses to map interactions between financial health at the sectoral level are still scarce. To fill the gap, in this paper, I map a network of predictive relationships across the financial health of several sectors. I provide a new advanced indicator to track propagation of financial distress across industries and countries on a monthly basis. I use defaults on trade credit as a measure of firms’ worsening financial conditions in a sector. To control for omitted-variable bias, I apply a high- dimensional VAR analysis, and isolate direct cross-sector causalities `a la Granger from common exposure to macroeconomic shocks or to third-sector shock. I show that monitoring some key sectors–among which construction, wholesale and retail, or the automotive sector–can improve the detection of financial distress in other sectors. Finally, I find that those financial predictive relationships correlates with the input-output structure in the considered economies. Such structure of financial interactions reflect the propagation of financial distress along the supply chain.

Keywords: trade credit; network; cross-sector financial interdependencies (search for similar items in EconPapers)
JEL-codes: F14 F36 F44 L14 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-05
New Economics Papers: this item is included in nep-fdg and nep-net
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Working Paper: Cross-Sector Interactions in Western Europe: Lessons From Trade Credit Data (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2212

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