The Macroeconomics of Trade Credit

66 Pages Posted: 13 Mar 2023 Last revised: 10 Apr 2023

See all articles by Luigi Bocola

Luigi Bocola

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Gideon Bornstein

University of Pennsylvania

Date Written: March 2023


In most countries, suppliers of intermediate goods and services are also the main providers of short-term financing to firms. This paper studies the macroeconomic implications of these financial links. In our model, trade credit is the outcome of a long-term contract between firms linked in the production process, and it is sustained in equilibrium by reputation forces as customers lose the relationship with their suppliers in case of a default. These financial links give rise to a credit multiplier: suppliers can enforce repayment of these IOUs, and they can discount these bills with banks to obtain liquidity. This process can either dampen or amplify the output effects of financial shocks, depending on the borrowing capacity of suppliers. Using Italian data, we find that the credit multiplier is sizable and show that trade credit amplified the output costs of the Great Recession by 45%.

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Suggested Citation

Bocola, Luigi and Bornstein, Gideon, The Macroeconomics of Trade Credit (March 2023). NBER Working Paper No. w31026, Available at SSRN: or

Luigi Bocola (Contact Author)

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Gideon Bornstein

University of Pennsylvania ( email )

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