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Does trade credit substitute for bank credit?

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Author Info
Guido De Blasio () (Banca d'Italia)
Abstract

The paper examines micro data on Italian manufacturing firmsÂ’ inventory behavior to test the Meltzer (1960) hypothesis according to which firms substitute trade credit for bank credit during periods of monetary tightening. It finds that their inventory investment is constrained by the availability of trade credit. As for the magnitude of the substitution effect, however, this study finds that it is not sizable. This is in line with the micro theories of trade credit and the evidence on actual firm practices, according to which credit terms display modest variations over time.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 498.

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Date of creation: Jun 2004
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Handle: RePEc:bdi:wptemi:td_498_04

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Related research
Keywords: trade credit; monetary policy; manufacturing firms;

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Find related papers by JEL classification:
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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