The Influence Of Trade Credit To The Monetary Policy

The effectiveness of monetary policy is important to national economy, and effectivenessof the monetary policy is depend on the unobstructing of conducting channel. On present,financial market of our country is not perfect, and capital market is in its early stage, and creditchannel is still the most important channel of monetary policy in our country. One of the mostimportant conclusions of domestic scholars’ research is that credit channel of monetary policyin our country is obstructed. The reason for obstructing can be divided into three categories: thecentral bank, the commercial banks, the enterprises and residents. This paper put a research onthe blocking effect of credit trade to credit channel of monetary policy from the view ofsubstitution of trade credit to bank credit, and to demonstrate that trade credit will affect themonetary policy in the tightening monetary policy period.Study of scholars both at home and abroad show that relationship between trade creditand bank credit is substitution. When the central bank implement tightening monetarypolicy, the conduction process of credit channel is as follows: the central bank reduce themoney supply, and the credit rationing of commercial banks to the enterprises is increased,then money get from commercial banks of the enterprises is reduced, then investments andoutputs of the society are reduced, and so achieving the target of tightening the economic.However, in the process of credit channel, trade credit may affect its conduction: when theenterprises can not get loans from commercial banks, they will get money from theirpartners or upstream suppliers to meet their short-term financing needs, then formatinginvestments. That is when monetary policy tightening, bank credit that the enterprises getfrom commercial banks is reduced, but they increase using the trade credit, the trade creditformat blocking effect in this way. This paper demonstrates two views through theoreticaland empirical ways: firstly, the alternative of trade credit to bank credit is common;secondly, the alternative of trade credit to bank credit in tightening monetary policy periodis stronger than that in expansion monetary policy period, because the enterprises will vulnerable to meet loan quotas from banks in tightening monetary policy period, theenterprises will increase reliance on trade credit. This paper instructs that when monetarypolicy tightening, the credit rationing from banks to the enterprises is increased, tradecredit will substitute bank credit to meet the demand of short-term financing of theenterprises, and then effect the monetary policy. the target of this paper is to providevaluable reference to others’ research and policy developing.This paper consists six parts, the first part is introduction, mainly introduces thebackground and significance of this paper, research ideas and content arrangements,research methods and data sources, as well as insufficient and innovation of this article.The second part is literature review, mainly on the study of trade credit, credit channel ofmonetary policy, as well as domestic and international literature on the relationshipbetween the two has combed, illustrating the theoretical basis of this article. The third partconsists the real foundation of this article, mainly on China’s monetary policy transmissionchannels, credit rationing of China’s enterprises and the using of trade credit in our countryis described, illustrating the practical basis of this article. The fourth part of this paperdescript the variable selection and sample data statistically analyzed, and lay thefoundation for empirical research below.The fifth part of the empirical analysis is animportant section of this article, verify the premise of this article and model design, andfinally carry out the random effects variable intercept model and random effects modelvariable intercept time-varying BC variable coefficient model analysis. And empiricalresults are summarized. The sixth part of this paper is conclusion and policyrecommendations, this part get a conclusion through the theoretical and empirical analysisabove the full text, and put forward the corresponding policy recommendations. A majorconclusion of this paper is on the bank’s credit, trade credit alternatives will play a role,especially in period of monetary policy tightening. This also shows that in the period ofmonetary policy tightening, trade credit obstruct the credit channel of monetary policy, sothe monetary authorities should take the effect of this block of trade credit fully intoaccount in the implementation of monetary policy.