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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 the firm becomes net trade borrower. We also construct the implicit interest rate as the difference between creditors and debtors over the sum of both. Our results show that a tightening in monetary policy leads to: (i) increase interest rate of trade credit, (ii) become firms in trade borrowers, (iii) generate divergence in the cost of trade credit among firms of the same industry sector, and (iv) create a complementarity effect in prices between trade and bank financing.