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Trade finance in a liquidity crisis, Volume 1
 
Author:Ellingsen, Tore; Vlachos, Jonas; Country:World;
Date Stored:2009/11/18Document Date:2009/11/01
Document Type:Policy Research Working PaperSubTopics:Access to Finance; Emerging Markets; Economic Theory & Research; Debt Markets; Trade Law
Language:EnglishRegion:The World Region
Report Number:WPS5136Collection Title:Policy Research working paper ; no. WPS 5136
Volume No:1  

Summary: 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.

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