The origins of aggregate fluctuations in a credit network economy

Levent Altinoglu

Journal of Monetary Economics, 2021, vol. 117, issue C, 316-334

Abstract: Inter-firm lending plays an important role in business cycle fluctuations. I build a network model of the economy in which trade in intermediate goods is financed by supplier credit. A financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms propagate financial shocks, amplifying their aggregate effects. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. I estimate aggregate and idiosyncratic shocks to US industries and find that financial shocks are a prominent driver of cyclical fluctuations, particularly during the Great Recession.

Keywords: Credit network; Input-Output economy; Trade credit; Financial frictions; Business cycles (search for similar items in EconPapers)
JEL-codes: C67 E32 G10 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:316-334

DOI: 10.1016/j.jmoneco.2020.01.007

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