Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market

Using a panel of credit default swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are –36 and –38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains and is amplified if supply chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply chain tiers for adverse shocks but attenuates for favorable shocks. This paper was accepted by Kay Giesecke, finance.

Credit shocks and their impact on banking profitability – An applied study on the Iraqi National Bank for the period (2004-2016) – Iraq –: الصدمات الائتمانية وتأثيرها على الربحية المصرفية - دراسة تطبيقية على المصرف الأهلي العراقي للمدة من (2004-2016) – العراق -

The research aims to identify the impact of credit shocks on the profitability of the bank and after studying and identifying research variables, and after data has been collected on the research sample and it (the National Bank of Iraq) for a period of (2004-2016), these data were subjected to several tests including multiple statistical self-regression and simple regression through the use SPSS software V.25, Minitab v.18, and research found a set of practical results, including the effect that there is a significant relationship between credit shocks and profitability of the bank at a significant level (0.05) of the Iraqi National Bank, the research has presented a number of recommendations, including the need for attention by the banks management research sample and banks and other study of credit negative shocks and knowledge of its causes in order to play by reducing and address them, enabling them to build a strong reputation contribute to the achievement of high performance banking on the mid-level and long-term thing which is reflected positively in achieving profitability, As well as the need for the bank to maintain a suitable financial stock to face negative shocks, which contributes to the survival of the bank as long as possible in the market, preserving its position.

The Four Equation New Keynesian Model

This paper develops a New Keynesian model featuring financial intermediation, short- and long-term bonds, credit shocks, and scope for unconventional monetary policy. The log-linearized model reduces to four equations – Phillips and IS curves as well as policy rules for the short-term interest rate and the central bank's long-bond portfolio (QE). Credit shocks and QE appear in both the IS and Phillips curves. In equilibrium, optimal monetary policy entails adjusting the short-term interest rate to offset natural rate shocks, but using QE to offset credit market disruptions. Use of QE significantly mitigates the costs of a binding zero lower bound.