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Trade credit, bank lending and monetary policy transmission

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  3. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  4. Stephen D. Oliner & Glenn D. Rudebusch, 1994. "Is there a broad credit channel for monetary policy?," Working Paper Series / Economic Activity Section 146, Board of Governors of the Federal Reserve System (U.S.).
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  10. Jeffrey H. Nilsen, 1999. "Trade Credit and the Bank Lending Channel," Working Papers 99.04, Swiss National Bank, Study Center Gerzensee.
  11. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1993. "The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan," NBER Working Papers 4421, National Bureau of Economic Research, Inc.
  12. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December.
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  19. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
  20. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Review, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  21. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
  22. Patrick Bolton & Xavier Freixas, 2000. "Equity, Bonds, and Bank Debt: Capital Structure and Financial Market Equilibrium under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 324-351, April.
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  24. Jain, Neelam, 2001. "Monitoring costs and trade credit," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 89-110.
  25. Atanasova, Christina V. & Wilson, Nicholas, 2004. "Disequilibrium in the UK corporate loan market," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 595-614, March.
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  29. Anil Kashyap & Jeremy C. Stein, 1993. "Monetary Policy and Bank Lending," NBER Working Papers 4317, National Bureau of Economic Research, Inc.
  30. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 213-32.
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