Working Paper (JMP)

“Financial and Production Integration in the Macroeconomy” (with Emanuele Brancati, Qingqing Cao, and Raoul Minetti)

Abstract: We study how the integration between the financial sector and the production structure influences business cycle transmission. In a dynamic general equilibrium economy where banks finance supply chains, we find that a stronger integration between the banking sector and supply chains has ambiguous effects on macroeconomic stability. Integration along an extensive margin, in the form of greater ability to borrow from banks specialized in other supply chain segments, amplifies the impact of negative banking shocks. In contrast, integration between banks and supply chains along an intensive margin, in the form of greater diffusion of supply chain finance (factoring activities and bank invoice discounting), mitigates the transmission of banking shocks. The predictions of the model are consistent with bank-firm matched data from Italy.

Work in Progress

• “The Transmission of Monetary Policy through Supply Chains and Banking Networks”