DP15277 Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers

Author(s): Gabriel Jiménez, Huremovic Kenan, Enrique Moral-Benito, José Luis Peydró, Fernando Vega-Redondo
Publication Date: September 2020
Date Revised: September 2020
Keyword(s): credit supply, networks, real effects of finance, shock propagation, Supply Chains
JEL(s): D85, E44, E51, G01, G21
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15277

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.