Trade credit and the monetary transmission mechanism

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 26 June 2000

Working Paper no. 115
By Marion Kohler Erik Britton and Tony Yates 

This paper investigates whether firms with direct access to capital markets ‘help out’ firms who are reliant on credit from banks by extending more trade credit when times are hard. Taking up a theme of Meltzer (1960) it asks, whether there is a ‘trade credit channel’ that offsets the bank credit channel more familiar to monetary economists. Using a panel of UK firms quoted on the UK stock exchange, we find that there is. This might explain why, to date, evidence on the bank credit channel has been equivocal.

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