Template-Type: ReDIF-Paper 1.0
Author-Name: Ryan Niladri Banerjee
Author-X-Name-First: Ryan
Author-X-Name-Last: Niladri Banerjee
Author-Name: Hyun Song Shin
Author-X-Name-First: Hyun
Author-X-Name-Last: Song Shin
Author-Name: Jose María Vidal Pastor
Author-X-Name-First: Jose Maria
Author-X-Name-Last: Vidal Pastor
Title: Elasticity of money in production networks, working capital, credit lines and financial conditions
Abstract: The elastic supply of money through overdrafts and credit lines overcomes cash-in-advance con straints, enabling large-value payments without waiting for incoming cash. This elasticity is crucial in long supply chains, where cash-in-advance constraints could otherwise cause gridlock. In essence, money elasticity and the supply of working capital are two sides of the same coin, with undrawn credit lines serving as the operative link. This paper examines how shifts in financial conditions influence money elasticity and, in turn, impact firm activity within produc tion networks. Using granular firm-level data, we demonstrate that production-network-driven working capital needs introduce a cyclical element that dances to the tune of financial conditions. Tighter conditions, such as rising credit spreads or a stronger US dollar, significantly reduce output, with spillovers through production networks amplifying the effects. These findings underscore the importance of money elasticity in supporting economic stability.
Creation-Date: 2026-05
File-URL: https://www.bis.org/publ/work1350.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1350.htm
File-Format: text/html
Number: 1350
Keywords: money elasticity, working capital, credit lines, financial conditions, input-output linkages
Classification-JEL: E23, E32, E41, E44, E51, F65
Handle: RePEc:bis:biswps:1350