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  5. Production and Financial Networks in Interplay

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Production and Financial Networks in Interplay

  • Kenan Huremović
  • Gabriel Jiménez
  • Enrique Moral-Benito
  • José-Luis Peydró
  • Fernando Vega-Redondo
American Economic Review (Forthcoming)

Abstract

We show that bank credit shocks to firms propagate along the production network, with stronger upstream than downstream effects. Our identification relies on: (i) administrative datasets from Spain covering supplier-customer transactions and bank loans; (ii) bank credit supply shocks from the Global Financial Crisis; and (iii) a general equilibrium model of a production network with financial frictions, estimated structurally. We find that network propagation amplifies the impact of bank shocks on GDP growth by nearly 50%. Moreover, bank shocks to firms’ distant suppliers and customers contribute similarly to this aggregate effect as bank shocks to firms’ direct customers and suppliers.

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