Bank Loans, Trade Credit and Export Prices: Evidence from Exchange Rate Shocks in China
Date
Jun 2024
This study investigates exchange rate pass-through (ERPT) to international prices in the context of trade credit usage. Utilizing a comprehensive dataset including customs transactions and balance sheet data of Chinese exporters during 2000-2011, we document several stylized facts. First, there exists a significant dampening effect on the sensitivity of international pricing to exchange rate fluctuations among exporters that extend substantial trade credit, indicating a more complete ERPT. Second, the interest payments made by exporters to domestic banks exhibit negative responsiveness
to home currency depreciation. Third, we observe substantial complementarity between trade credit and bank loans. To explain these patterns, we introduce a theoretical model featuring trade credits, bank lending and exchange rate shocks. Our findings underscore the importance of considering the financial health of firms in policy formulation, particularly in strategies aimed at managing inflation through supply chains.
to home currency depreciation. Third, we observe substantial complementarity between trade credit and bank loans. To explain these patterns, we introduce a theoretical model featuring trade credits, bank lending and exchange rate shocks. Our findings underscore the importance of considering the financial health of firms in policy formulation, particularly in strategies aimed at managing inflation through supply chains.
NO
