Trade Credit and the Transmission of Unconventional Monetary Policy
71 Pages Posted: 24 Sep 2020 Last revised: 19 Oct 2020
Date Written: October 13, 2020
We show that production networks are important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit is more pronounced from core countries to periphery countries and for financially constrained customers. Customers increase investment and employment in response to the increase in trade financing, while suppliers expand their customer base, potentially contributing to upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy redistributes the effects of unconventional monetary policy across regions and firms.
Keywords: Monetary policy, Trade credit, Corporate bonds, Investment, Employment
JEL Classification: E50, G30
Suggested Citation: Suggested Citation