Working Paper: CEPR ID: DP15277
Authors: Jos Luis Peydro; Gabriel Jimenez Huremovic; Kenan Enrique Moral-Benito; Fernando Vega Redondo
Abstract: We show that bank shocks originating in the financial sector propagate upstream and downstream along the production network and triple the impact of direct bank shocks. Our identification relies on the universe of both supplier-customer transactions and bank loans in Spain, a standard operationalization of credit-supply shocks during the 2008-09 global crisis, and the proposed theoretical framework. The impact on real effects is strong, and similarly so, when considering: (i) direct bank shocks to firms versus first-order interim contagion; (ii) first-order versus higher-order network effects; (iii) downstream versus upstream propagation; (iv) firm-specific versus economy-wide shocks. Market concentration amplifies these effects.
Keywords: Networks; Supply Chains; Shock Propagation; Credit Supply; Real Effects of Finance
JEL Codes: D85; E44; E51; G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Direct bank shocks to firms (G21) | Reduction in purchases (D12) |
| Direct bank shocks to firms (G21) | Reduction in sales growth (F61) |
| Negative bank shock to a supplier (G21) | Reduction in firm's purchases from that supplier (L14) |
| Negative bank shock to a customer (G21) | Reduction in firm's sales (D21) |
| Direct bank shocks to firms (G21) | Indirect effects through suppliers and customers (L14) |
| Market concentration amplifies effects of bank shocks (E44) | Larger spillovers from bank credit supply shocks (E51) |