Financial shocks, bank intermediation, and monetary policy in. The global financial crisis provides an important testing ground for the financial globalisation model. The key prediction of the financial view of the transmission mechanism is thus supported by the data. Not all international monetary shocks are alike for the japanese economy. The characteristic feature of the recent global economic crisis is the speed and extent of the shock transmission. Weinstein columbia university and nber february 25, 2011 abstract. Financial shocks, bank intermediation, and monetary policy in a dsge model marc hafstead. 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. The recent events in the financial sector show up as a tightening of firms financing conditions which contributed to the 20082009 recession. Global banks, financial shocks, and international business cycles.
Weinstein columbia university and nber november 24, 2009 abstract. Their second approach estimates a mediumscale dsge model using bayesian. 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. Exports and financial shocks mary amiti federal reserve bank of new york david e.
Macroeconomic effects of financial shocks wharton finance. Monetary policy shocks and industrial output in nigeria. The article analyses the role of international supply chains as transmission channels of a financial shock. Exports and financial shocks d e columbia university. 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.
We find that financial shocks contributed significantly to the observed dynamics of real and financial variables. We document the cyclical properties of us firms financial flows and show that equity payout is procyclical and debt. Financial markets are known to be capable of generating shocks that are as powerful as those analyzed by the. Global banks, financial shocks, and international business. Bond spread shocks are found to have direct consequences for real economic development, with a 25 basis points shock giving an effect on industrial production of 0. International trade and real transmission channels of financial shocks in globalized production networks hubert escaith 1 fabien gonguet abstract. Natural disasters, financial shocks, and firm export.
A striking feature of many financial crises is the collapse of exports relative to output. Evans federal reserve bank of chicago contents abstract keywords 1. Regarding previous literature, the imf 2006 evidences that while oil price shocks have a shortlived. International transmissions of monetary shocks xuehui han1 and shangjin wei2 november 1, 2015 abstract. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint.
In response to adverse financial conditions, fewer firms enter the export markets and existing firms export less, causing the total number of exports to shrink. 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. Exports and financial shocks 1845 there have been a number of papers documenting the added time required for international transactions. Exports and financial shocks mary amiti and david e. A natural experiment approach with a massive earthquake. Macroeconomic effects of financial shocks american economic. Pdf not all international monetary shocks are alike for. Identifying fiscal shocks and policy regimes in oecd countries. 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. 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. Propagation of financial shocks in an inputoutput economy. Asset fire sales and purchases and the international. 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.
Financial shocks, supplychain relationships and the great. 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. Luca dedola ecb and cepr giovanni lombardo ecb extremely preliminary this version. 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. Financial regimes and uncertainty shocks sciencedirect. Using a unique firmlevel dataset that allows us to identify firms and banks in the earthquakeaffected area, together with information on bankfirm. The large size of japanese bank lending operations in the united states enables us to use u. Asset pricing and the propagation of financial shocks european. We measure readiness to face emergency expenses using data from a representative survey of u.
It was thus concluded that output fluctuations of g7 countries during the post war were not primarily determined by the shocks in monetary policy. The sum of foreign assets and foreign liabilities expressed as a ratio to gdp and termed. Exporters and shocks doireann fitzgeraldy stefanie hallerz first draft. International finance and macroeconomics, international trade and investment. Financial exposure and the international transmission of financial. Because individual firms are interdependent and rely on each other, either as supplier. E32,e44,f40,g21 abstract a striking feature of many financial crises is the collapse of exports relative to output. Motivation themodel quantitativeresultssummary learning from monetary shocks and asset returns simongilchrist,guihaizhao departmentofeconomics bostonuniversity. A factoraugmented vector autoregressive favar approach. Macroeconomic effects of financial shocks by urban jermann and vincenzo quadrini.
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. The paper attempts to fill a gap in the empirical literature by analyzing the impact of adverse commodity price shocks on the fragility of. We outline the policy reforms required at national and international levels in section 4. One main lesson from the 20072009 global crisis is that financial shocks are a more. We develop a model with explicit roles for debt and equity financing and explore how the observed dynamics of real and financial variables are. First, i show that nancial shocks can propagate upstream if there are nancial linkages of rms and nancial frictions in trade. Weinstein columbia university and nber october 28, 2009 abstract. First, did financial globalisation materially contribute to the origination of the global financial crisis.
We estimate a panel var for 21 advanced economies based on quarterly data between 1985 and. Exports and financial shocks european trade study group. Employing monthly data from 1996 to 2008 on over 1,000. International finance and macroeconomics, international trade and investment a striking feature of many financial crises is the collapse of exports relative to output.
Lucas department of economics, university of saskatchewan abstract. Online appendices to fiscal volatility shocks and economic activity not for publication jesus fern andezvillaverde, pablo guerr onquintana, keith kuester, and juan rubioram rez july 2, 2015 fern andezvillaverde. Chotibhak jotikasthira, christian lundblad and tarun ramadoraiy january 2011 abstract we uncover a new channel through which nancial shocks are transmitted across international borders. The study found out that changes in output were associated with monetary policy shocks in the short run, though, on a trivial basis. The downturns in 19901991 and 2001 were also influenced by. Financial crisis began in 2007 when total debt had risen to around 230% of gdp. They find that the great recession was strongly influenced by financial shocks. 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. 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. 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. No doubt there are some advantages to abandoning the recursiveness assumption.
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. Second, i nd, based on the inputoutput matrix and the bond yield data in the u. The international transmission of financial shocks. International trade and real transmission channels of.
The factors that determine the volume and impacts of these shocks on business cycle fluctuation are also in the scope of analysis. Financial shocks are measured as shocks to corporate bond spreads and implied volatility. Commodity price shocks and financial sector fragility. 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. Olken to large, negative impacts on the growth of their exports. Online appendices to fiscal volatility shocks and economic. This paper analyzes the transmission mechanism of banking sector shocks. Financial shocks and the macroeconomy european stability. In the 2008 financial crisis, real world exports plunged 17 percent while gdp fell 5 percent. The transmission mechanism of financial shocks in the global. Financial shocks and economic activity in the netherlands. Financial constraint is generated, for example, by weak lending capacity of lending banks amiti and weinstein 2011. Financial shocks, bank intermediation, and monetary policy.
The impact of external shocks on business cycle fluctuation. Keating1 andandrewleesmith2 universityofkansas,departmentofeconomics,1460jayhawkblvd. The transmission mechanism of financial shocks in the. The transmission of euro area monetary shocks to the czech republic, poland and hungary. In contrast with some crosscountry evidence, shocks which increase government spending on wages and transfers have in. 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. Macroeconomic effects of financial shocks american. 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. Although highly open financial economies tend to be more directly vulnerable to external financial shocks, the global financial. 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 transmission of financial shocks. Exports and financial shocks mary amiti federal reserve bank of new york and cepr david e.
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