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    Review of 'A model of the indirect losses from negative shocks in production and finance'

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    A model of the indirect losses from negative shocks in production and financeCrossref
    Paper analyzes natural disaster and crisis impacts on Japanese economy
    Average rating:
        Rated 4 of 5.
    Level of importance:
        Rated 5 of 5.
    Level of validity:
        Rated 3 of 5.
    Level of completeness:
        Rated 3 of 5.
    Level of comprehensibility:
        Rated 4 of 5.
    Competing interests:
    None

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    A model of the indirect losses from negative shocks in production and finance

    Economies are frequently affected by natural disasters and both domestic and overseas financial crises. These events disrupt production and cause multiple other types of economic losses, including negative impacts on the banking system. Understanding the transmission mechanism that causes various negative second-order post-catastrophe effects is crucial if policymakers are to develop more efficient recovery strategies. In this work, we introduce a credit-based adaptive regional input-output (ARIO) model to analyse the effects of disasters and crises on the supply chain and bank-firm credit networks. Using real Japanese networks and the exogenous shocks of the 2008 Lehman Brothers bankruptcy and the Great East Japan Earthquake (March 11, 2011), this paper aims to depict how these negative shocks propagate through the supply chain and affect the banking system. The credit-based ARIO model is calibrated using Latin hypercube sampling and the design of experiments procedure to reproduce the short-term (one-year) dynamics of the Japanese industrial production index after the 2008 Lehman Brothers bankruptcy and the 2011 Great East Japan earthquake. Then, through simulation experiments, we identify the chemical and petroleum manufacturing and transport sectors as the most vulnerable Japanese industrial sectors. Finally, the case of the 2011 Great East Japan Earthquake is simulated for Japanese prefectures to understand differences among regions in terms of globally engendered indirect economic losses. Tokyo and Osaka prefectures are the most vulnerable locations because they hold greater concentrations of the above-mentioned vulnerable industrial sectors.
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      The paper presents an interesting application of a credit-based adaptive regional input-output (ARIO) model to analyze the effects of natural disasters and financial crises on the supply chain and bank-firm credit networks in Japan. The use of real Japanese networks and exogenous shocks such as the 2008 Lehman Brothers bankruptcy and the Great East Japan Earthquake to calibrate the model is appropriate and adds credibility to the study's findings. The paper effectively identifies the chemical and petroleum manufacturing and transport sectors as the most vulnerable Japanese industrial sectors, and Tokyo and Osaka prefectures as the most vulnerable regions. However, the paper could benefit from a more detailed discussion of the implications of the findings for policymakers and the practicality of implementing the proposed recovery strategies.

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