IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/115.html
   My bibliography  Save this paper

Trade credit and the monetary transmission mechanism

Author

Listed:
  • Marion Kohler
  • Erik Britton
  • Tony Yates

Abstract

This paper investigates whether firms with direct access to capital markets 'help out' firms who are reliant on credit from banks by extending more trade credit when times are hard. In other words, is there a 'trade credit channel' that offsets the bank credit channel more familiar to monetary economists? Using a panel of UK firms quoted on the UK stock exchange it is found that there is. This might explain why, to date, evidence on the bank credit channel has been equivocal.

Suggested Citation

  • Marion Kohler & Erik Britton & Tony Yates, 2000. "Trade credit and the monetary transmission mechanism," Bank of England working papers 115, Bank of England.
    • Handle: RePEc:boe:boeewp:115
    as

    Download full text from publisher

    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2000/wp115.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 309-340.
    2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    3. Laffer, Arthur B, 1970. "Trade Credit and the Money Market," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 239-267, March-Apr.
    4. Ramey, Valerie, 1993. "How important is the credit channel in the transmission of monetary policy?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 1-45, December.
    5. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    6. Smith, Janet Kiholm, 1987. "Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-872, September.
    7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    8. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    9. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    10. J. Stephen Ferris, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 243-270.
    11. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    13. Boozer, Michael A., 1997. "Econometric Analysis of Panel DataBadi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(5), pages 747-754, October.
    14. Stephen D. Oliner & Glenn D. Rudebusch, 1995. "Is there a bank lending channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 1-20.
    15. Gregory E. Elliehausen & John D. Wolken, 1993. "The demand for trade credit: an investigation of motives for trade credit use by small businesses," Staff Studies 165, Board of Governors of the Federal Reserve System (U.S.).
    16. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 643-657, September.
    17. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-1141, December.
    18. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    19. Giuseppe Marotta, 1997. "Does trade credit redistribution thwart monetary policy? Evidence from Italy," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1619-1629.
    20. Dale, Spencer & Haldane, Andrew G., 1995. "Interest rates and the channels of monetary transmission: Some sectoral estimates," European Economic Review, Elsevier, vol. 39(9), pages 1611-1626, December.
    21. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Altunok, Fatih & Mitchell, Karlyn & Pearce, Douglas K., 2020. "The trade credit channel and monetary policy transmission: Empirical evidence from U.S. panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 226-250.
    2. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2010. "Credit supply - Identifying balance-sheet channels with loan applications and granted loans," Working Paper Series 1179, European Central Bank.
    3. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2017. "“In the Short Run Blasé, In the Long Run Risqué”," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(3), pages 181-226, August.
    4. Simona Mateut, 2005. "Trade Credit and Monetary Policy Transmission," Journal of Economic Surveys, Wiley Blackwell, vol. 19(4), pages 655-670, September.
    5. Sandra Eickmeier & Boris Hofmann & Andreas Worms, 2009. "Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 10(2), pages 193-223, May.
    6. Angelopoulou, Eleni & Balfoussia, Hiona & Gibson, Heather D., 2014. "Building a financial conditions index for the euro area and selected euro area countries: What does it tell us about the crisis?," Economic Modelling, Elsevier, vol. 38(C), pages 392-403.
    7. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    8. Belinda L. Del Gaudio & Gabriele Sampagnaro & Claudio Porzio & Vincenzo Verdoliva, 2022. "The signaling role of trade credit in bank lending decisions: Evidence from small and medium‐sized enterprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 327-354, January.
    9. Bougheas, Spiros & Mizen, Paul & Yalcin, Cihan, 2006. "Access to external finance: Theory and evidence on the impact of monetary policy and firm-specific characteristics," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 199-227, January.
    10. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2017. "‘In the Short Run Blasé, in the Long Run Risqué’. On the Effects of Monetary Policy on Bank Credit Risk-Taking in the Short versus Long Run," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 181-226.
    11. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    12. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
    13. Couppey-Soubeyran Jézabel & Héricourt Jérôme, 2013. "The Impact of Financial Development on the Relationship between Trade Credit, Bank Credit, and Firm Characteristics: A Study on Firm-Level Data from Six MENA Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 9(2), pages 197-239, August.
    14. Cristina Martínez-Sola & Pedro García-Teruel & Pedro Martínez-Solano, 2014. "Trade credit and SME profitability," Small Business Economics, Springer, vol. 42(3), pages 561-577, March.
    15. Rodríguez Rodríguez, O. Mª, 2005. "El crédito comercial en las pymes canarias desde una perspectiva multivariante," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 23, pages 773-816, Diciembre.
    16. Matteo Ciccarelli & Angela Maddaloni & Jose Luis Peydro, 2015. "Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 979-1002, October.
    17. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    18. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    19. Christina Atanasova, 2007. "Access to Institutional Finance and the Use of Trade Credit," Financial Management, Financial Management Association International, vol. 36(1), pages 49-67, March.
    20. Jiao Wang & Lima Zhao & Arnd Huchzermeier, 2021. "Operations‐Finance Interface in Risk Management: Research Evolution and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 355-389, February.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Media Team (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.