Cyclical Dynamics of Trade Credit with Production Networks

Wukuang Cun, Junjie Xia and Vincenzo Quadrini
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Wukuang Cun: University of Southern California
Junjie Xia: Peking University

No 932, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper we show that in production and trade networks that characterize the Chinese economy there is an externality that (inefficiently) reduces the supply of trade credit from state-owned firms to private-owned firms. Furthermore, the externality becomes more severe in recessions. This implies that the response of trade credit to shocks displays excess sensitivity and amplifies macroeconomic shocks. The paper also studies policy interventions that encourage bank lending and finds that, in the context of the Chinese production and trade credit network, these policies may not be very effective in stimulating the real sector of the economy.

Date: 2018
New Economics Papers: this item is included in nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:932

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