The effectiveness of monetary policy transmission through trade credit channel in Vietnam

Abstract

Existing research in Vietnam mainly focuses on the traditional transmission channels of monetary
policy. This article investigates the effectiveness of monetary policy transmission through an alternative
funding channel for bank credit, which is the trade credit channel. Panel data regression was conducted with
datasets from 501 Vietnamese enterprises in the period of the second quarter of 2010 to the second quarter
of 2020. The results show that most enterprises in Vietnam do not have the ability to use trade credit as an
alternative fund for bank credit in the context of monetary tightening, thereby helping to maintain or even
increase the transmission efficiency of monetary policy. The transmission of monetary policy through the
trade credit channel is most effective for enterprises with low credit ratings and is partly weakened for large
enterprises, which can use trade credit as complementary short-term financing in the situation of credit
supply shortage