Trade Finance in a Liquidity Crisis

24 Pages Posted: 20 Apr 2016

See all articles by Tore Ellingsen

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Jonas Vlachos

Stockholm University - Department of Economics; Research Institute of Industrial Economics (IFN)

Date Written: November 1, 2009

Abstract

The paper discusses the reasons for supporting international trade finance during a liquidity crisis. Targeted interventions are justified when prices are rigid and sellers insist on immediate payment due to fears of strategic default. In this case, buyers who reject the seller's offer fail to internalize the seller's benefit from additional liquidity. A general infusion of credit will not facilitate the beneficial transaction, but an infusion targeted at the buyer's bank's trade finance supply will do so. Since there is a need for interventions in one country to benefit actors in another, international coordination is called for.

Keywords: Debt Markets, Emerging Markets, Economic Theory & Research, Access to Finance, Trade Law

Suggested Citation

Ellingsen, Tore and Vlachos, Jonas, Trade Finance in a Liquidity Crisis (November 1, 2009). World Bank Policy Research Working Paper No. 5136, Available at SSRN: https://ssrn.com/abstract=1509203

Tore Ellingsen (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Jonas Vlachos

Stockholm University - Department of Economics ( email )

Stockholm, 10691
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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