Abstract:The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.JEL classification: C67, F23, F36, G01, L16
We analyze the US public sector balance sheet and project it forward under the assumption that
current policies remain in place. We first document the history of the balance sheet and its
components since World War II, with a detailed account of its evolution during and after
the global financial crisis. While, based on assets and liabilities alone, public sector net
worth is negative, additional challenges arise from commitments to future spending implied
by current legislation and demographic trends. To quantify the risks to the balance sheet,
we then apply the macroeconomic scenarios from the Federal Reserve’s bank stress test to
the public sector balance sheet.
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