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Trade Credit, Bank Lending and Monetary Policy Transmission

  • Mateut, Simona

    (University of Nottingham)

  • Spiros Bougheas
  • Paul Mizen

This paper investigates the role of trade credit in the transmission of monetary policy. Most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion. In our model we introduce trade credit as an dditional source of funding. We predict that when monetary policy tightens there will be a reduction in market and bank lending, and an increase in trade credit. This is confirmed with an empirical investigation of 16,000 manufacturing firms.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 149.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:149
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  1. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  2. Jeffrey H. Nilsen, 1999. "Trade Credit and the Bank Lending Channel," Working Papers 99.04, Swiss National Bank, Study Center Gerzensee.
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  8. 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.).
  9. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, 06.
  10. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-37.
  11. Repullo, Rafael & Suarez, Javier, 1999. "Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel," CEPR Discussion Papers 2060, C.E.P.R. Discussion Papers.
  12. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
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  14. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(04), pages 643-657, September.
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  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.
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  24. Anil K. Kashyap & Owen A. Lamont & Jeremy C. Stein, 1993. "Credit conditions and the cyclical behavior of inventories," Working Paper Series, Macroeconomic Issues 93-7, Federal Reserve Bank of Chicago.
  25. 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.
  26. Marion Kohler & Erik Britton & Tony Yates, 2000. "Trade credit and the monetary transmission mechanism," Bank of England working papers 115, Bank of England.
  27. 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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  29. 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.
  30. repec:cup:cbooks:9780521008051 is not listed on IDEAS
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