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US Monetary Policy Spillovers to Emerging Markets: the Trade Credit Channel

Mélina London and Maéva Silvestrini

Working papers from Banque de France

Abstract: We analyze the effects of exogenous US monetary policy shocks on trade credit towards emerging markets, using a proprietary database on trade credit amounts. We show that a US monetary tightening leads to an increase in foreign-supplied trade credit in Mexico. Thanks to the granularity of our database, we are able to identify a stronger effect for trade credit in USD and trade credit to sectors with low export orientation. This effect is even larger for low-quality buyers, subject to larger financial constraints. In this latter case, distinguishing between the intensive and extensive margins, we show that the use of trade credit as a substitute only holds in a context of pre-existing relationships. This emphasizes the substitution role of trade credit when global financial conditions tighten due to US monetary policy shocks.

Keywords: US Monetary Policy; Spillovers; Capital Flows; Emerging Market; Trade Credit (search for similar items in EconPapers)
JEL-codes: E52 F14 F40 F44 L14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2023
New Economics Papers: this item is included in nep-cba and nep-mon
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