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Trade Credit, Bank Lending and Monetary Policy Transmission

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  • Simona MATEUT
  • Spiros BOUGHEAS
  • Paul MIZEN

Abstract

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.

Suggested Citation

  • Simona MATEUT & Spiros BOUGHEAS & Paul MIZEN, 2003. "Trade Credit, Bank Lending and Monetary Policy Transmission," Economics Working Papers ECO2003/02, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2003/02
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    References listed on IDEAS

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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