Discussion Papers

Price Dynamics and the Financing Structure of Firms in Emerging Economies

AUTHOR(s): Finkelstein Shapiro, Alan , González Gómez, Andrés , Nuguer, Victoria , Roldán-Peña, Jessica
PUBLISHED: April 2018


We use a novel dataset that merges goods-level prices underlying the CPI in Mexico with the balance sheet information of Mexican publicly listed rms and study the connection between rms' nancing structure and price dynamics in an emerging economy. First, we nd that larger rms (in terms of sales and employees) tend to use more inter rm trade credit relative to bank credit. Second, these rms use inter rm trade credit as a mechanism to smooth variations in their prices. Third, all else equal, rms with a higher trade-to-bank credit ratio tend to lower prices. In turn, the behavior of these rms explains the negative relationship between aggregate trade credit growth and ination in the data. A tractable New Keynesian model with search frictions in physical input markets sheds light on rms' structural characteristics as well as the economic mechanisms that rationalize our empirical ndings.

Related Research by JEL Codes:
(or click here to find research by JEL Codes)
  • Macroprudential Policy and Labor Market Dynamics in Latin America
    Working Papers
    IDB-WP-584 - March 2015

    This paper builds a small open economy business cycle model with labor and financial market frictions that incorporates frictional, endogenous self-employment entry and a link between formal credit markets, informal credit, and the labor market. The paper then shows that the model is consistent with the cyclical behavior of both labor and credit markets in Latin American economies and analyze ... (View publication)

  • Finance and Employment Formalization: Evidence from Mexico's Income-Expenditure Surveys, 2000-2010
    Working Papers
    IDB-WP-324 - April 2014

    This paper studies the relationship between financial slack and employment formalization by exploiting heterogeneity in industry-level financial dependence in the spirit of Rajan and Zingales (1998). Heterogeneity along with time-series variation in aggregate credit are used to determine industry-level financial slack and measure its relationship to employment formality. Also presented are two bas ... (View publication)

  • Inequality and Institutions
    Working Papers
    WP-506 - April 2004

    This paper presents theory and evidence on the relationship between inequality and institutional quality. We propose a model in which the two dynamically reinforce each other and set out to test this relationship with a broad array of institutional measures. We establish double causality between better institutional quality and a more equal distribution of income, but also demonstrate that the lin ... (View publication)

Hello, Welcome to the IDB!

Please join our mailing list by simply entering your email below.