MONETARY POLICY, IMPLICIT INTEREST RATE, AND RELATIVE NET TRADE CREDIT

This paper investigates the effects of monetary policy on the implicit interest rate of trade credit as well as the probability of firms becoming net trade borrowers. We compute the implicit interest rate as the difference between the interest payments made to creditors and those received from debtors over the sum of both. Our results show that a tightening of monetary policy leads to: (i) increasing interest rates for trade credit, (ii) firms becoming trade borrowers, (iii) the generation of divergence in the cost of trade credit among firms in the same industrial sector, and (iv) the generation of a complementarity effect in prices between trade and bank financing.