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

Salih Fendoglu () and Steven Ongena

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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”.

Keywords: Sudden stop; Credit supply channel; Domestic production networks; Emerging market economies (search for similar items in EconPapers)
JEL-codes: E44 F34 F41 L14 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1818

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