https://macropaperwarehouse.com/authors/gabriel-jimenez/Gabriel JiménezHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/production-and-financial-networks-in-interplay/https://macropaperwarehouse.com/papers/production-and-financial-networks-in-interplay/<p>This paper provides the first integrated empirical analysis of how bank credit supply shocks propagate through both the production network and the financial network simultaneously, using the universe of firm-to-firm VAT transactions and bank-firm credit register data for Spain during the 2008-09 global financial crisis. The theoretical framework, following Bigio and La&rsquo;O (2016), links credit supply shocks to price distortions in the real economy and derives network-mediated propagation effects. The central empirical finding is that propagation through the production network triples the impact of direct bank credit shocks: a negative bank shock induces a 0.98 percentage point reduction in the directly affected firm&rsquo;s purchases and sales growth, while first-order network effects add another 0.91 pp and higher-order network effects add 1.07 pp, for a combined indirect effect equal to twice the direct effect. Both upstream and downstream propagation are economically significant and of similar magnitude at the first-order level. Market concentration amplifies all propagation effects, and firms that are simultaneously central in both the production and financial networks generate disproportionately large aggregate contractions.</p>