DP14639 Trade Credit and the Transmission of Unconventional Monetary Policy

Author(s): Manuel Adelino, Miguel Ferreira, Mariassunta Giannetti, Pedro Pires
Publication Date: April 2020
Keyword(s): corporate bonds, employment, investment, monetary policy, trade credit
JEL(s): E50, G30
Programme Areas: Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14639

We show that trade credit in production networks is 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 flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms.