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Trade finance in a liquidity crisis

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Author Info

  • Ellingsen, Tore
  • Vlachos, Jonas

Abstract

The paper discusses the reasons for supporting international trade finance during a liquidity crisis. Targeted interventions are justified when prices are rigid and sellers insist on immediate payment due to fears of strategic default. In this case, buyers who reject the seller's offer fail to internalize the seller's benefit from additional liquidity. A general infusion of credit will not facilitate the beneficial transaction, but an infusion targeted at the buyer's bank's trade finance supply will do so. Since there is a need for interventions in one country to benefit actors in another, international coordination is called for.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5136.

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Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:wbk:wbrwps:5136

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Related research

Keywords: Debt Markets; Emerging Markets; Economic Theory&Research; Access to Finance; Trade Law;

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Cited by:
  1. Davin Chor & Kalina Manova, 2010. "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis," Working Papers 08-2010, Singapore Management University, School of Economics.
  2. Tim Schmidt-Eisenlohr, 2011. "Towards a Theory of Trade Finance," Economics Series Working Papers 583, University of Oxford, Department of Economics.

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