The Macroeconomics of Trade Credit
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.
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Copy CitationLuigi Bocola and Gideon Bornstein, "The Macroeconomics of Trade Credit," NBER Working Paper 31026 (2023), https://doi.org/10.3386/w31026.Download Citation
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