How bank shocks propagate through production networks

A new study published in the May 2026 issue of the American Economic Review and authored by an international group of researchers gives a different perspective on how production and financial networks are at interplay. The research develops a framework that integrates two key dimensions of modern economies: the network of supply relationships among firms and the web of financial connections linking firms to banks. While these networks have traditionally been studied in isolation, the paper demonstrates that their interplay is essential to understanding how bank shocks affect the real economy.