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The origins of aggregate fluctuations in a credit network economy

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  • Altinoglu, Levent

Abstract

Inter-firm lending plays an important role in business cycle fluctuations. I build a network model of the economy in which trade in intermediate goods is financed by supplier credit. A financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms propagate financial shocks, amplifying their aggregate effects. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. I estimate aggregate and idiosyncratic shocks to US industries and find that financial shocks are a prominent driver of cyclical fluctuations, particularly during the Great Recession.

Suggested Citation

  • Altinoglu, Levent, 2021. "The origins of aggregate fluctuations in a credit network economy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 316-334.
    • Handle: RePEc:eee:moneco:v:117:y:2021:i:c:p:316-334
    DOI: 10.1016/j.jmoneco.2020.01.007
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    References listed on IDEAS

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    Cited by:

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    2. Wong, Kacheng & Zhao, Longkai, 2023. "Customer–supplier relationships and non-linear financial policy response," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 180-205.
    3. Esposito, Federico & Hassan, Fadi, 2023. "Import competition, trade credit and financial frictions in general equilibrium," LSE Research Online Documents on Economics 121378, London School of Economics and Political Science, LSE Library.
    4. Garcia-Lazaro, Aida & Mistak, Jakub & Gulcin Ozkan, F., 2021. "Supply chain networks, trade and the Brexit deal: a general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    5. Esposito, Federico & Hassan, Fadi, 2023. "Import Competition, Trade Credit, and Financial Frictions in General Equilibrium," CEPR Discussion Papers 17926, C.E.P.R. Discussion Papers.
    6. Minetti, Raoul & Romanini, Giacomo & Ziv, Oren, 2023. "The Network Gravity of Global Banking," Working Papers 2023-4, Michigan State University, Department of Economics.
    7. Adilkhanova, Zarina & Nurlankul, Aruzhan & Token, Aizat & Yavuzoglu, Berk, 2022. "Trade credit and financial crises in Kazakhstan," Journal of Asian Economics, Elsevier, vol. 80(C).
    8. Qicheng Zhao & Zhouwei Wang & Yuping Song, 2024. "Systematic Research on Multi-dimensional and Multiple Correlation Contagion Networks of Extreme Risk in China’s Banking Industry," Computational Economics, Springer;Society for Computational Economics, vol. 64(2), pages 1137-1162, August.
    9. Thiago Christiano Silva & Carlos Eduardo de Almeida, 2024. "COVID-19 and Supply Chain Disruptions: a novel perspective using a network of payments in Brazil," Working Papers Series 595, Central Bank of Brazil, Research Department.
    10. Dianfan Yu & Rui Long & Chao Wang, 2023. "Production network: Application in China," International Studies of Economics, John Wiley & Sons, vol. 18(2), pages 159-183, June.

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    More about this item

    Keywords

    Credit network; Input-Output economy; Trade credit; Financial frictions; Business cycles;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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