Connected for Better or Worse? The Role of Production Networks in Financial Crises

Jorge Miranda-Pinto, Eugenio Rojas (), Felipe Saffie and Álvaro Silva

No 26-1, Working Papers from Federal Reserve Bank of Boston

Abstract: We study how production networks shape the severity of Sudden Stops. We build a small open economy model with collateral constraints and input–output linkages, derive a sufficient statistic that maps network structure onto the amplification of tradable shocks, and show that a planner optimally introduces sectoral wedges to reduce amplification. Using OECD input-output data and Sudden Stop episodes, we document systematic network differences between emerging and advanced economies and show they predict crisis severity. A calibrated three-sector DSGE model disciplined by these differences reveals that endowing an advanced economy with an emerging-market production network moves most of the way toward the observed emerging–advanced Sudden Stop gap.

Keywords: networks; financial crises; sudden stops; macroprudential policy (search for similar items in EconPapers)
JEL-codes: D57 D85 E32 (search for similar items in EconPapers)
Pages: 66
Date: 2025-12-01
New Economics Papers: this item is included in nep-dge and nep-soc
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Working Paper: Connected for Better or Worse? The Role of Production Networks in Financial Crises (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:102336

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DOI: 10.29412/res.wp.2026.01

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