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Trade Credit and the Transmission of Unconventional Monetary Policy

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  • Manuel Adelino
  • Miguel A Ferreira
  • Mariassunta Giannetti
  • Pedro Pires

Abstract

We show that production networks are important for the transmission of unconventional monetary policy. Firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries by extending additional trade credit to their customers. The increase in trade credit is pronounced from core countries to periphery countries and for financially constrained customers. Customers then increase investment and employment in response to the increased trade financing, whereas suppliers expand their customer base, contributing to upstream industry concentration. Our findings suggest that trade credit redistributes the effects of monetary policy across regions and firms.

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  • Manuel Adelino & Miguel A Ferreira & Mariassunta Giannetti & Pedro Pires, 2023. "Trade Credit and the Transmission of Unconventional Monetary Policy," The Review of Financial Studies, Society for Financial Studies, vol. 36(2), pages 775-813.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:2:p:775-813.
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    Cited by:

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    2. Dottori, Davide & Micucci, Giacinto & Sigalotti, Laura, 2024. "Trade debts and bank lending in years of crisis," International Review of Financial Analysis, Elsevier, vol. 92(C).
    3. Ersahin, Nuri & Giannetti, Mariassunta & Huang, Ruidi, 2024. "Trade credit and the stability of supply chains," Journal of Financial Economics, Elsevier, vol. 155(C).
    4. Alvaro Garcia-Marin & Santiago Justel & Tim Schmidt-Eisenlohr, 2019. "Trade Credit, Markups, and Relationships," CESifo Working Paper Series 7600, CESifo.
    5. Gilchrist, Simon & Wei, Bin & Yue, Vivian Z. & Zakrajšek, Egon, 2024. "The Fed takes on corporate credit risk: An analysis of the efficacy of the SMCCF," Journal of Monetary Economics, Elsevier, vol. 146(C).
    6. Frederic Boissay & Nikhil Patel & Hyun Song Shin, 2020. "Trade credit, trade finance, and the Covid-19 Crisis," BIS Bulletins 24, Bank for International Settlements.
    7. Zhang, Jiping & Mo, Haimiao & Hu, Zhijian & Zhang, Tianjiao, 2024. "The effect of stability and concentration of upstream and downstream relationships of focal firms on two-level trade credit," International Journal of Production Economics, Elsevier, vol. 270(C).
    8. Diana Bonfim & André Capela, 2020. "The effect of corporate bond purchases by the ECB on firms’ borrowing costs," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    9. Linh, Nguyen Thuy, 2021. "The Impact of the Bank of Japan’s Exchange Traded Fund and Corporate Bond Purchases on Firms’ Capital Structure," RCESR Discussion Paper Series DP21-1, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    10. Jagriti Srivastava & Balagopal Gopalakrishnan, 2021. "In-kind financing during a pandemic: Trade credit and COVID-19," Working papers 473, Indian Institute of Management Kozhikode.
    11. Bittner, Christian & Fecht, Falko & Georg, Co-Pierre, 2021. "Contagious zombies," Discussion Papers 15/2021, Deutsche Bundesbank.
    12. ARATA Yoshiyuki & MIYAKAWA Daisuke, 2022. "Demand Shock Propagation Through an Input-output Network in Japan," Discussion papers 22027, Research Institute of Economy, Trade and Industry (RIETI).
    13. Arata, Yoshiyuki & Miyakawa, Daisuke, 2024. "Demand shock propagation through input-output linkages in Japan," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 262-283.
    14. Wang, Wenya & Xu, Qiyu & Yang, Ei, 2024. "Bargaining power and trade credit: The heterogeneous effect of credit contractions," Journal of Banking & Finance, Elsevier, vol. 161(C).
    15. Lu, Bing & Ma, Hong, 2023. "The “Matthew effect” in rebates: How does VAT rebates allocation affect firm export performance," Journal of Public Economics, Elsevier, vol. 225(C).
    16. Srivastava, Jagriti & Gopalakrishnan, Balagopal, 2021. "In-kind financing during a pandemic: Trade credit and COVID-19," MPRA Paper 108951, University Library of Munich, Germany.
    17. Al-Hadi, Ahmed & Al-Abri, Almukhtar, 2022. "Firm-level trade credit responses to COVID-19-induced monetary and fiscal policies: International evidence," Research in International Business and Finance, Elsevier, vol. 60(C).
    18. Cui, Baisheng & Li, Jiaqi & Zhang, Yi, 2024. "Asymmetries in the international spillover effects of monetary policy: Based on TGVAR model," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    19. repec:ptu:bdpart:r202008 is not listed on IDEAS

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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