International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks / World Trade Organization.

Format:

Book

Government document

Author/Creator:

World Trade Organization.

Series:

WTO Working Papers, 25189808 ; no.2009/06.

WTO Working Papers, 25189808 ; no.2009/06

Language:

English

Subjects (All):

Economic research and trade policy analysis.

Local Subjects:

Economic research and trade policy analysis.

Physical Description:

1 online resource (33 pages).

Place of Publication:

Geneva : World Trade Organization, 2009.

System Details:

text file

Summary:

The article analyses the role of international supply chains as transmission channels of a financial shock. 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.

Access Restriction:

Restricted for use by site license.