BEGIN:VCALENDAR VERSION:2.0 METHOD:PUBLISH PRODID:-//Telerik Inc.//Sitefinity CMS 15.1//EN BEGIN:VTIMEZONE TZID:Eastern Standard Time BEGIN:STANDARD DTSTART:20251102T020000 RRULE:FREQ=YEARLY;BYDAY=1SU;BYHOUR=2;BYMINUTE=0;BYMONTH=11 TZNAME:Eastern Standard Time TZOFFSETFROM:-0400 TZOFFSETTO:-0500 END:STANDARD BEGIN:DAYLIGHT DTSTART:20250301T020000 RRULE:FREQ=YEARLY;BYDAY=2SU;BYHOUR=2;BYMINUTE=0;BYMONTH=3 TZNAME:Eastern Daylight Time TZOFFSETFROM:-0500 TZOFFSETTO:-0400 END:DAYLIGHT END:VTIMEZONE BEGIN:VEVENT DESCRIPTION:The Moynihan Institute's Trade\, Development and Political Econ omy program presents \;Tim Schmidt-Eisenlohr the principal economist f rom the International Finance division of the Federal Reserve Board of Gov ernors.Most domestic and international firm-to-firm transactions rely on t rade credit\, where sellers grant buyers time to pay the invoice after del ivery. Exploiting Chilean and Colombian transaction-level trade data\, thi s paper documents new facts about trade credit use: trade credit use incre ases with firm-to-firm relationship length\, an effect that is stronger fo r destination (source) countries with weaker (stronger) contract enforceme nt and for trade in differentiated goods. The paper develops a model featu ring enforcement frictions\, learning and a financing cost advantage of tr ade credit that can rationalize these patterns. Initially\, as there is un certainty about the reliability of the trading partner\, payment risk is a key factor limiting the use of trade credit. Through learning\, this unce rtainty resolves within a relationship over time. For older relationships\ , the payment choice is\, therefore\, only determined by the financing cos t advantage of trade credit\, and all relationships rely on trade credit i n the long run. The paper thereby suggests a new benefit of long-term trad e relationships: the ability to save on financing costs through the use of trade credit.Tim Schmidt-Eisenlohr is a principal economist in the Intern ational Finance division of the Federal Reserve Board and a fellow of CESi fo\, Munich. \; His research interests include international trade\, i nternational finance and international tax competition. He earned a Ph.D. from the European University Institute in 2010. DTEND:20230918T210500Z DTSTAMP:20260315T201410Z DTSTART:20230918T193000Z LOCATION: SEQUENCE:0 SUMMARY:Tim Schmidt-Eisenlohr: Trade Credit and Relationships UID:RFCALITEM639091880504207814 X-ALT-DESC;FMTTYPE=text/html:

The Moynihan Institute's Trade\, Developmen t and Political Economy program presents \;Tim Schmidt-Eisenlohr the p rincipal economist from the International Finance division of the Federal Reserve Board of Governors.

Most domestic and international firm-to- firm transactions rely on trade credit\, where sellers grant buyers time t o pay the invoice after delivery. Exploiting Chilean and Colombian transac tion-level trade data\, this paper documents new facts about trade credit use: trade credit use increases with firm-to-firm relationship length\, an effect that is stronger for destination (source) countries with weaker (s tronger) contract enforcement and for trade in differentiated goods.

< p>The paper develops a model featuring enforcement frictions\, learning an d a financing cost advantage of trade credit that can rationalize these pa tterns. Initially\, as there is uncertainty about the reliability of the t rading partner\, payment risk is a key factor limiting the use of trade cr edit. Through learning\, this uncertainty resolves within a relationship o ver time. For older relationships\, the payment choice is\, therefore\, on ly determined by the financing cost advantage of trade credit\, and all re lationships rely on trade credit in the long run. The paper thereby sugges ts a new benefit of long-term trade relationships: the ability to save on financing costs through the use of trade credit.

Tim Schmidt-Eisenlo hr is a principal economist in the International Finance division of the F ederal Reserve Board and a fellow of CESifo\, Munich. \; His research interests include international trade\, international finance and internat ional tax competition. He earned a Ph.D. from the European University Inst itute in 2010.

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