The Macroeconomics of Trade Credit

Luigi Bocola and Gideon Bornstein

No 31026, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In most countries, suppliers of intermediate goods and services are also major providers of short-term financing to firms. This paper studies the macroeconomic implications of these financial links. In our model, trade credit arises from long-term relationships between firms linked in production and is sustained by reputation: customers repay in order to preserve their relationships with suppliers. These financial links generate a credit multiplier. Suppliers can enforce repayment from their customers and discount receivables with banks to obtain liquidity. This process can either dampen or amplify the output effects of financial shocks, depending on suppliers’ borrowing capacity. Using Italian data, we find that the credit multiplier is sizable and that trade credit substantially amplified the output costs of the Great Recession.

JEL-codes: E44 G01 G30 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban and nep-fdg
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