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Trade credit, bank lending and monetary policy transmission

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  • Mateut, Simona
  • Bougheas, Spiros
  • Mizen, Paul

Abstract

This paper investigates the role of trade credit in the transmission of monetary policy. Most models of the transmission mechanism allow firms to access only financial markets or bank lending according to some net worth criterion. In our model we consider external finance from trade credit as an additional source of funding for firms that cannot obtain credit from banks. We predict that when monetary policy tightens there will be a reduction in bank lending relative to trade credit. This is confirmed with an empirical investigation of 16,000 UK manufacturing firms.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 50 (2006)
Issue (Month): 3 (April)
Pages: 603-629

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Handle: RePEc:eee:eecrev:v:50:y:2006:i:3:p:603-629

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