Credit Chains and Sectoral Comovement [electronic resource] : Does the Use of Trade Credit Amplify Sectoral Shocks? / Raddatz, Claudio
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TextPublication details: Washington, D.C., The World Bank, 2008Description: 1 online resource (53 p.)Subject(s): Access to Finance | Adverse effect | Bankruptcy | Bankruptcy and Resolution of Financial Distress | Business cycles | Central Bank | Debt | Debt Markets | Economic Theory and Research | Finance and Financial Sector Development | Interest rate | Investment and Investment Climate | Liquidity | Macroeconomics | Macroeconomics and Economic Growth | Risk neutral | Value addedAdditional physical formats: Raddatz, Claudio.: Credit Chains and Sectoral Comovement.Online resources: Click here to access online Abstract: This paper provides evidence of the presence and relevance of a credit-chain amplification mechanism by looking at its implications for the correlation of industries. In particular, it tests the hypothesis that an increase in the use of trade-credit along the input-output chain linking two industries results in an increase in their correlation. The analysis uses detailed data on the correlations and input-output relations of 378 manufacturing industry-pairs across 44 countries with different degrees of use of trade credit. The results provide strong support for this hypothesis and indicate that the mechanism is quantitatively relevant.
This paper provides evidence of the presence and relevance of a credit-chain amplification mechanism by looking at its implications for the correlation of industries. In particular, it tests the hypothesis that an increase in the use of trade-credit along the input-output chain linking two industries results in an increase in their correlation. The analysis uses detailed data on the correlations and input-output relations of 378 manufacturing industry-pairs across 44 countries with different degrees of use of trade credit. The results provide strong support for this hypothesis and indicate that the mechanism is quantitatively relevant.
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