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Title:International trade and real transmission channels of financial shocks in globalized production networks PDF Logo
Authors:Escaith, Hubert
Gonguet, Fabien
Issue Date:2009
Series/Report no.:WTO Staff Working Paper ERSD-2009-06
Abstract: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.
Subjects:international supply chains
monetary circuit
real linkages
transmission channels of financial shock
Asian International Input-Output Tables
JEL:C67
F23
F36
G01
L16
Document Type:Working Paper
Appears in Collections:WTO Staff Working Papers, Economic Research and Statistics Division, WTO

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