Trade credit, bank lending and monetary policy transmission

Posted: 19 Dec 2023

See all articles by Simona Mateut

Simona Mateut

Nottingham University Business School

Spiros Bougheas

University of Nottingham - School of Economics

Paul Mizen

University of Nottingham; Bank of England; Centre for Economic Policy Research (CEPR)

Date Written: December 19, 2023

Abstract

This paper investigates the role of trade credit in the transmission of monetary policy. Most
models of the transmission mechanism allow firms to access only financial markets or bank
lending according to some net worth criterion. In our model we consider external finance from
trade credit as an additional source of funding for firms that cannot obtain credit from banks.
We predict that when monetary policy tightens there will be a reduction in bank lending
relative to trade credit. This is confirmed with an empirical investigation of 16,000 UK
manufacturing firms.

Keywords: Trade credit, Bank lending, Monetary policy transmission, Credit channel

JEL Classification: E44, E52

Suggested Citation

Mateut, Simona and Bougheas, Spiros and Mizen, Paul, Trade credit, bank lending and monetary policy transmission (December 19, 2023). European Economic Review, Vol. 50, No. 3, 2006, Available at SSRN: https://ssrn.com/abstract=4669149

Simona Mateut (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Spiros Bougheas

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Paul Mizen

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5479 (Phone)
+44 115 951 4159 (Fax)

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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