The 1991 international crisis in the persian gulf is a further testimony to the importance of oil. Exports and financial shocks d e columbia university. In the 2008 financial crisis, real world exports plunged 17 percent while gdp fell 5 percent. Asset fire sales and purchases and the international. For example, if it were suddenly discovered that there is no more oil in the world, this would cause economic shock, causing prices to skyrocket. Keating1 andandrewleesmith2 universityofkansas,departmentofeconomics,1460jayhawkblvd. Macroeconomic e ects of financial shocks by urban jermann and vincenzo quadrini we document the cyclical properties of u. Exports and financial shocks mary amiti federal reserve bank of new york and cepr david e. In response to the importance of this topic, the basel committee on banking supervision established a working group under its research task force to study the transmission channels between the financial and the real sectors the rtftc group.
We also examine whether these shocks affect the natural selection of the firms, whereby more efficient firms are less likely to go bankrupt. This exercise helps identify which determinants of macroeconomic resilience to external shocks have worsened since the global financial crisis. 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. Weinstein columbia university and nber february 25, 2011 abstract. Commodity price shocks and financial sector fragility prepared by tidiane kinda, montfort mlachila, and rasmane ouedraogo1 february 2016 abstract this paper investigates the impact of commodity price shocks on financial sector fragility. First draft february 2014 second draft august 2017. First, i show that nancial shocks can propagate upstream if there are nancial linkages of rms and nancial frictions in trade. The impact of the financial crisis, and more generally global shocks, on. The federal reserve board of governors in washington dc. Natural disasters, financial shocks, and firm export this version.
We find that financial shocks contributed significantly to the observed dynamics of real and financial variables. Weinstein columbia university and nber october 28, 2009 abstract. Financial shocks, bankruptcy, and natural selection. The international transmission of financial shocks. The macroeconomic impact of financial and uncertainty shocks. Moreover, the point estimates suggest that the partial effect of a bank crisis on exports accounts for about onethird of the dramatic drop in exports observed in the japanese financial crises of the 1990s. Secretariat of the basel committee on banking supervision, bank for international settlements, basel. Using a unique firmlevel dataset that allows us to identify firms and banks in the earthquakeaffected area, together with information on bankfirm. International transmission of financial shocks without. Propagation of financial shocks in an inputoutput economy. Trade shocks and macroeconomic fluctuations in africa m. We then develop a model with debt and equity nancing to explore how. Likewise, if the technology was developed to make oil obsolete and was announced with no notice, it would cause an economic shock in the other direction. The federal reserve, the central bank of the united states, provides the nation with a safe, flexible, and stable monetary and financial system.
Final draft shocks, economic growth and the indian. Luca dedola ecb and cepr giovanni lombardo ecb extremely preliminary this version. How banks affect export patterns friederike niepmann and tim schmidteisenlohr abstract how relevant are financial instruments to manage risk in international trade for exporting. First, did financial globalisation materially contribute to the origination of the global financial crisis. Weinstein columbia university and nber november 24, 2009 abstract. On that basis, a financial shock in one country is also likely to spread through the latter channel of globalization. Economic shock financial definition of economic shock. Working paper series no 1522 march 20 what does a financial shock do. Final draft shocks, economic growth and the indian economy b. The factors that determine the volume and impacts of these shocks on business cycle fluctuation are also in the scope of analysis. Second, i nd, based on the inputoutput matrix and the bond yield data in the u. Cristina fuentesalbero simon gilchrist egon zakraj.
Exports and financial shocks federal reserve bank of. Economic shock events that impact the economy which originate from outside it. Financial shocks transmission to unemployment in developing. International finance and macroeconomics program, international trade and investment program a striking feature of many financial crises is the collapse of exports relative to output. They find that the great recession was strongly influenced by financial. Demandandsupplysideshocks canhappenatthesametime globalexternal economicshocks commodityprices oilprices gasprices industrialmetals foodprices commoditiesnewsandmarketdata financialmarkets shareprices creditcrunch exchangerates. Using a large sample of 71 commodity exporters among emerging and developing. Attempts to link bank health to the real economy have relied onaggregatedatathatmakeitdif. E32,e44,f40,g21 abstract a striking feature of many financial crises is the collapse of exports relative to output. This paper examines the role of external shocks in explaining macroeconomic fluctuations in african countries. Proponents of a trade finance channel between banks and exporters note that exports are more sensitive to financial shocks due to the higher default risk and higher working capital requirements associated with international trade. The downturns in 19901991 and 2001 were also influenced by.
Chotibhak jotikasthira, christian lundblad and tarun ramadoraiy january 2011 abstract we uncover a new channel through which nancial shocks are transmitted across international borders. Not surprisingly, a large literature is devoted to the. International finance and macroeconomics program, international trade and investment program. Financial shocks, bank intermediation, and monetary policy. Energy shocks and financial markets throughout modern history, oil has played a prominent role in shaping the economic and political developments of industrialized economies. Exports and financial shocks mary amiti and david e. This as representing the views of the european central bank ecb. Financial shocks, bank intermediation, and monetary policy in a dsge model marc hafstead. 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. Standard productivity shocks can only partially explain the movements in real and financial variables.
Financial shocks transmission to unemployment in developing countries. A natural experiment approach with a massive earthquake. A report to the department for business, innovation and skills. On other hand, given the lack of connectedness between financial markets in both developing and developed economies, it is expected that financial shocks effect on poor countries to take place through shrinking international trade and drops on other forms of capital flows such as fdi, oda and remittances. Exports and financial shocks mary amiti federal reserve bank of new york david e. 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. While the unprecedented fluctuations in japanese stock prices were domestic financial shocks, the unique institutional characteristics of the japanese economy. Macroeconomic effects of financial shocks urban jermann and vincenzo quadrini nber working paper no. Financial shocks, supplychain relationships and the great. In this paper, we investigate whether financial shocks to firms affect their probability of bankruptcy. Bhattacharya and sabyasachi kar contents page executive summary 1 introduction 2 economic shocks and their impact on growth 3 incidence and impact of domestic and external shocks on the indian economy 7.
Commodity price shocks and financial sector fragility. This paper examines whether deteriorations in bank health can help explain the large drops in exports relative to output in the recent crisis. Regarding previous literature, the imf 2006 evidences that while oil price shocks have a shortlived. Second, the paper stands among the gvar literature by plugging more developing countries to the model as well as considering the most influential countries in the. The recent events in the financial sector show up as a tightening of firms financing conditions which contributed to the 20082009 recession. 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. The global financial crisis provides an important testing ground for the financial globalisation model. March 20 daisuke miyakawa development bank of japanricf kaoru hosono gakushuin university ministry of finance taisuke uchino daito bunka university rieti arito ono mizuho research institute hirofumi uchida kobe university. Indian economy is less vulnerable to external shocks as it is mainly driven by household consumption and government spending, and not dependent. This article examines whether deteriorations in bank health can help. Economic shock an event that can cause a sudden, drastic change in an economy. The transmission channels between financial sector and. We develop a model with explicit roles for debt and. Note also that because reduced production and spending stemming from shocks to the real sector also depress asset prices, shocks to the real economy can also be propagated via.
Trade shocks and macroeconomic fluctuations in africa. Definition of microfinance m icrofinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and lowincome households and, their microenterprises. Weusedatafortheyears 1996 through 2009, and for nace revision 1. Asset fire sales and purchases and the international transmission of financial shocks. This study theoretically explores how financial shocks in one country propagate to its partner country through trade in goods alone. Evans federal reserve bank of chicago contents abstract keywords 1. The macroeconomic impact of financial and uncertainty shocks dario caldara. For example, if it were suddenly discovered that there is no more oil in the world, this.
We also examine whether these shocks affect the natural selection of the. Financial constraint a b s t r a c t in this paper, we investigate whether. Financial crisis began in 2007 when total debt had risen to around 230% of gdp. Natural disasters, financial shocks, and firm export. While financial shocks directly press for increases in the cost of external. Financial shocks, bank intermediation, and monetary policy in. Equity payouts are procyclical and debt payouts are countercyclical. Federal reserve board comprehensive capital analysis and. Construct series for productivity and credit shocks from the data using models restrictions. Using a sample of 21 countries, i compare the values of the identified variables in 2007 the preglobal financial crisis year with the respective values at the end of 2014. Basel committee on banking supervision working paper no. An economic shock is an event that occurs outside of an economy, and produces a significant change within an economy. Oil shocks and external balances prepared by lutz kilian, alessandro rebucci, and nikola spatafora1 authorized for distribution by tim callen may 2007 abstract this working paper should not be reported as representing the views of the imf.
Evaluate the importance of credit and productivity shocks for macroeconomic. Macroeconomic effects of financial shocks by urban j. Pdf global macro financial shocks and expected default. The transmission channels between the financial and. A striking feature of many financial crises is the collapse of exports relative to output. E32,g10 abstract in this paper we document the cyclical properties of u. Global macro financial shocks and expected default frequencies in the euro area. The views expressed in this working paper are those of the authors and do not necessarily represent.