Tracing the Impact of a Sudden Stop: The Role of Bank Rollover Risks, Expectations, and Domestic Production Networks
| Title: |
Tracing the Impact of a Sudden Stop: The Role of Bank Rollover Risks, Expectations, and Domestic Production Networks |
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Number: |
18/18 |
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Author(s): |
Salih Fendoğlu, Steven Ongena |
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Language: |
English |
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Date: |
November 2018 |
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Abstract: |
We show that ex-ante higher bank rollover risks in international wholesale markets and more pessimistic bank expectations about future foreign funding conditions significantly amplify the reduction in bank credit supply after a sudden stop. Moreover, the reduction in bank credit supply has cascading real effects through domestic production networks, amplifying the effect of credit crunch on investment. The mechanism is that suppliers ex-ante working more with global-liquidity-reliant banks reduce their supply of inputs to their downstream firms more after the sudden stop. For identification, we study comprehensive micro-level databases from Turkey, and exploit the sudden stop around “Lehman”. |
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Keywords: |
Sudden stop, Credit supply channel, Domestic production networks, Emerging market economies |
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JEL Codes: |
E44; F34; F41; L14 |
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