We develop a model with explicit roles for debt and equity financing and explore how the observed dynamics of real and financial variables are. They find that the great recession was strongly influenced by financial shocks. Luca dedola ecb and cepr giovanni lombardo ecb extremely preliminary this version. Macroeconomic effects of financial shocks american. The article analyses the role of international supply chains as transmission channels of a financial shock. Macroeconomic effects of financial shocks american economic. The study found out that changes in output were associated with monetary policy shocks in the short run, though, on a trivial basis. International trade and real transmission channels of financial shocks in globalized production networks hubert escaith 1 fabien gonguet abstract. Djankov, freund, and pham 2006 found in a sample of 180 countries that the median amount of time it takes from the moment the goods are ready to ship from the factory until the goods are loaded on a ship is. Using a unique firmlevel dataset that allows us to identify firms and banks in the earthquakeaffected area, together with information on bankfirm. Keating1 andandrewleesmith2 universityofkansas,departmentofeconomics,1460jayhawkblvd. The sum of foreign assets and foreign liabilities expressed as a ratio to gdp and termed.
Olken to large, negative impacts on the growth of their exports. Identifying fiscal shocks and policy regimes in oecd countries. A factoraugmented vector autoregressive favar approach. Financial shocks and the macroeconomy european stability. The key prediction of the financial view of the transmission mechanism is thus supported by the data. Financial crisis began in 2007 when total debt had risen to around 230% of gdp. The transmission mechanism of financial shocks in the global. Weinstein columbia university and nber february 25, 2011 abstract. Evans federal reserve bank of chicago contents abstract keywords 1. Because individual firms are interdependent and rely on each other, either as supplier. The factors that determine the volume and impacts of these shocks on business cycle fluctuation are also in the scope of analysis. Financial shocks, bank intermediation, and monetary policy in.
Real and nominal effects of monetary policy shocks rokon bhuiyan department of economics, queens university robert f. E32,e44,f40,g21 abstract a striking feature of many financial crises is the collapse of exports relative to output. Exporters and shocks doireann fitzgeraldy stefanie hallerz first draft. This paper analyzes the transmission mechanism of banking sector shocks. Financial markets are known to be capable of generating shocks that are as powerful as those analyzed by the. Oil shocks and external balances international monetary fund. While financial shocks directly press for increases in the cost of external financing, a trade shock indirectly leads to similar pressures as funding costs are influenced by investors perception of increased risk. Asset fire sales and purchases and the international.
Exports and financial shocks mary amiti federal reserve bank of new york and cepr david e. The large size of japanese bank lending operations in the united states enables us to use u. We outline the policy reforms required at national and international levels in section 4. Christiano northwestern university, nber and the federal reserve bank of chicago martin eichenbaum northwestern university, nber and the federal reserve bank of chicago charles l. Chotibhak jotikasthira, christian lundblad and tarun ramadoraiy january 2011 abstract we uncover a new channel through which nancial shocks are transmitted across international borders. Online appendices to fiscal volatility shocks and economic. Exports and financial shocks mary amiti and david e. Credit market disruptions and economic uncertainty are commonly listed among the main causes of the prolonged recession experienced by the us and other western economies after the outbreak of the financial crisis in 2007 stock and watson, 2012. We document the cyclical properties of us firms financial flows and show that equity payout is procyclical and debt. First, i show that nancial shocks can propagate upstream if there are nancial linkages of rms and nancial frictions in trade. Lucas department of economics, university of saskatchewan abstract. Weinstein columbia university and nber november 24, 2009 abstract. Using a unique firmlevel dataset that allows us to identify firms and banks in the earthquakeaffected area, together with information on bankfirm relationships, we find the following. The paper attempts to fill a gap in the empirical literature by analyzing the impact of adverse commodity price shocks on the fragility of.
Financial shocks, supplychain relationships and the great trade collapse alok johriyand terry yipz mcmaster university june 5, 2017 abstract the collapse in trade relative to gdp during 200809 was unusually large historically and puzzling relative to the predictions of canonical twocountry models. Pdf not all international monetary shocks are alike for. We employ the identification scheme of kahn, kandel and sarig 2002 to analyze the impact of canadian monetary policy on exante real interest rates and. In bemanke and gertlers model exogenous technology shocks have possibly asymmehic effects as negative shocks are likely to have a greater effect than positive shocks. Regarding previous literature, the imf 2006 evidences that while oil price shocks have a shortlived. The transmission of euro area monetary shocks to the czech republic, poland and hungary. International transmissions of monetary shocks xuehui han1 and shangjin wei2 november 1, 2015 abstract. The downturns in 19901991 and 2001 were also influenced by. Monetary policy shocks and industrial output in nigeria. Financial shocks, bank intermediation, and monetary policy. Financial shocks are measured as shocks to corporate bond spreads and implied volatility. Macroeconomic effects of financial shocks wharton finance. Commodity price shocks and financial sector fragility.
Asset fire sales and purchases and the international transmission of financial shocks. The wellknown trilemma theory states that the nominal exchange rate regime plays a crucial role in a countrys ability to pursue monetary policy, that is, for its domestic objectives independent from other countries influences. Employing monthly data from 1996 to 2008 on over 1,000. Evidence from an estimated model this paper estimates a twocountry model with a global bank, using u. The recent events in the financial sector show up as a tightening of firms financing conditions which contributed to the 20082009 recession.
The aim of this paper is to identify the relationship between macroeconomic shocks and financial vulnerability in the argentine case for the period 19772004, by using vec models. Natural disasters, financial shocks, and firm export. The transmission mechanism of financial shocks in the. First, did financial globalisation materially contribute to the origination of the global financial crisis. In the 2008 financial crisis, real world exports plunged 17 percent while gdp fell 5 percent. Financial regimes and uncertainty shocks sciencedirect. Not all international monetary shocks are alike for the japanese economy.
Financial constraint is generated, for example, by weak lending capacity of lending banks amiti and weinstein 2011. The paper attempts to fill a gap in the empirical literature by analyzing the impact of adverse commodity price shocks on the fragility of the financial sector and has three main findings. Although highly open financial economies tend to be more directly vulnerable to external financial shocks, the global financial. Motivation themodel quantitativeresultssummary learning from monetary shocks and asset returns simongilchrist,guihaizhao departmentofeconomics bostonuniversity. Global banks, financial shocks, and international business cycles. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. International finance and macroeconomics, international trade and investment. The characteristic feature of the recent global economic crisis is the speed and extent of the shock transmission. Their second approach estimates a mediumscale dsge model using bayesian.
We estimate a panel var for 21 advanced economies based on quarterly data between 1985 and. No doubt there are some advantages to abandoning the recursiveness assumption. Macroeconomic effects of financial shocks by urban jermann and vincenzo quadrini. Asset pricing and the propagation of financial shocks european. A number of observers have suggested that one reason for the dramatic decline in the world export to gdp ratio was due to declines in the availability of trade finance.
Chotibhak jotikasthira, christian lundblad and tarun ramadoraiy november 2009 abstract we provide new evidence on the channels through which nancial shocks are transmitted across international borders. Financial shocks and economic activity in the netherlands. Global banks, financial shocks, and international business. Weinstein columbia university and nber october 28, 2009 abstract. Exports and financial shocks d e columbia university. Financial exposure and the international transmission of financial. International trade and real transmission channels of. The impact of external shocks on business cycle fluctuation. Depending on the dataset and specification, we find that a poor country being one degree celsius warmer in a given year reduces the growth of that countrys exports by between 2. In contrast with some crosscountry evidence, shocks which increase government spending on wages and transfers have in. Propagation of financial shocks in an inputoutput economy. We find that financial shocks contributed significantly to the observed dynamics of real and financial variables. The development of crossnational production networks in recent years has significantly deepened the economic interdependency between countries, and a shock that occurs in one region can be swiftly and extensively transmitted to the rest of the. Exports and financial shocks european trade study group.
Second, i nd, based on the inputoutput matrix and the bond yield data in the u. Davos, switzerland preventing future shocks was a hot topic on the agenda at the annual meeting of the world economic forum, on the day the dow plunged more than 500 points, oil broke below. Using a unique firmlevel dataset, we single out the effect of exogenous financial shocks on firms exports by focusing on exports of firms that were not directly damaged by the earthquake but that transacted with damaged banks as their main banks. Financial shocks, bank intermediation, and monetary policy in a dsge model marc hafstead. Exports and financial shocks mary amiti federal reserve bank of new york david e. Because negative financial shocks reduce firm profits and firm value, potential exporters who do not have sufficient liquidities to cover entry costs do not enter the export market. Opposition to fdi and financial shocks joshua aizenmant ucsc, department of economics, e2, santa cruz, ca 95064, united states nber, united states received 1 september 2000. Cepii working paper oil price shocks and global imbalances within this context, the aim of this paper is to provide a detailed investigation of oil price shocks e.
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