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Does trade credit substitute for bank credit?

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  • Guido De Blasio

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    (Banca d'Italia)

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    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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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area 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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    Keywords: trade credit; monetary policy; manufacturing firms;

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