Trade Credit and the Transmission of Unconventional Monetary Policy

We show that production networks are important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank's Corporate Sector Purchase Program act as financial intermediaries by extending more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and for financially constrained customers. Customers increase investment and employment in response to the increase in trade financing, while suppliers expand their customer base, potentially contributing to upstream industry concentration. Our findings suggest that trade credit in production networks redistributes the effects of unconventional monetary policy across regions and firms