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Trade Credit, Bank Lending and Monetary Policy Transmission

  • Simona MATEUT
  • 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 additional 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 European University Institute in its series Economics Working Papers with number ECO2003/02.

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Date of creation: 2003
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Handle: RePEc:eui:euiwps:eco2003/02
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