Financial and Production Integration in the Macroeconomy

Emanuele Brancati, Qingqing Cao, Raoul Minetti and Nicholas Jaehyun Yi
Additional contact information
Qingqing Cao: https://www.clevelandfed.org/people/profiles/c/cao-qingqing

No 26-19, Working Papers from Federal Reserve Bank of Cleveland

Abstract: This paper studies how integration between the financial sector and production networks shapes business cycle transmission. We develop a dynamic model in which banks provide asset-based financing to firms embedded in supply chains. The model highlights two margins of bank–supply chain integration with opposite macroeconomic implications. Extensive-margin integration—captured by firms’ access to banks specializing in different supply chain segments—amplifies negative banking shocks. By contrast, intensive-margin integration—captured by the diffusion of factoring and invoice discounting—attenuates banking disruptions. The model reveals that the stabilizing effects of integration dominate when firm production linkages are tight. The predictions are consistent with matched bank–firm data from Italy.

Keywords: banks; financial integration; production networks; factoring (search for similar items in EconPapers)
JEL-codes: E23 E32 E44 (search for similar items in EconPapers)
Date: 2026-08-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.clevelandfed.org/-/media/project/cleve ... pers/2026/wp2619.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:103624

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-202619

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().