International trade and real transmission channels of financial shocks in globalized production networks
Hubert Escaith () and
No ERSD-2009-06, WTO Staff Working Papers from World Trade Organization (WTO), Economic Research and Statistics Division
Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.
Keywords: international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables (search for similar items in EconPapers)
JEL-codes: C67 F23 F36 G01 L16 (search for similar items in EconPapers)
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Working Paper: International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wtowps:ersd200906
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