Trade Credit's Role In China's Monetary Policy Transmission

Trade credit could be a kind of quasi-money. It could be substitute of money and bank credit, so it should affect monetary policy transmission. The traditional theory of monetary policy transmission had limited power to explain the effect of China's monetary policy. This paper considered trade credit into monetary policy transmission. Based on traditional theory of monetary policy transmission, this paper established three new monetary policy transfer channels containing trade credit, which were credit channel, exchange rate channel and asset price channel. The author used mathematic models and econometric models to study the relation between trade credit and monetary policy.This paper didn't only study the whole trade credit, but also study international trade credit and fake international tradecredi. To study trade credit's role in China's monetary policy better, we studied 3 kinds of trade credit.We did an empirical study of how trade credit responsed when China monetary policy changed. The result was that constrictive monetary policy made trade credit increase and expansionary monetary policy made trade credit decrease. We also found "dissymmetrical effect" exist when monetary policy affected trade credit. The second empirical study of this paper was about what trade credit do in the three new monetary policy channels, and what the real channels should be. Based on this view, it explained China's monetary policy effect well. Empirical study had been divided for three kinds of trade credit, which were generalized trade credit, international trade credit and fake international trade credit. The result showed that trade credit could frustrate monetary policy. Especially, international trade credit weakened monetary policy in the short run but strengthened it in the long run. The effects of trade credit had some differences between different channels. This paper estimated the amount of fake international trade credit, which was used as illegal channels for international hot money. We found that fake international trade credit weakened China's monetary policy effect to some extent.We suggested that the authority should consider trade credit's effect when they changed monetary policy. The government should control fake international trade credit more seriously. As trade credit had its advantadges like convenience, many enterprises depended on it We proposed some suggestions on how to make trade credit have good effect.