Price%20Dynamics%20and%20the%20Financing%20Structure%20of%20Firms%20in%20Emerging%20Economies

Discussion Papers

Price Dynamics and the Financing Structure of Firms in Emerging Economies


CODE: IDB-DP-583
AUTHOR(s): Finkelstein Shapiro, Alan , González Gómez, Andrés , Nuguer, Victoria , Roldán-Peña, Jessica
PUBLISHED: April 2018
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

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.

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