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Trade finance in a liquidity crisis

Tore Ellingsen () and Jonas Vlachos ()

No 5136, Policy Research Working Paper Series from The World Bank

Abstract: The paper discusses the reasons for supporting international trade finance during a liquidity crisis. Targeted interventions are justified when prices are rigid and sellers insist on immediate payment due to fears of strategic default. In this case, buyers who reject the seller's offer fail to internalize the seller's benefit from additional liquidity. A general infusion of credit will not facilitate the beneficial transaction, but an infusion targeted at the buyer's bank's trade finance supply will do so. Since there is a need for interventions in one country to benefit actors in another, international coordination is called for.

Keywords: Debt Markets; Emerging Markets; Economic Theory&Research; Access to Finance; Trade Law (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2009-11-01
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