cover image: CIGS Working Paper Series No. 23-018E


CIGS Working Paper Series No. 23-018E

21 Nov 2023

To endogenize the intermediary’s initial endowment, and also to make the medium of ex- change explicit, in Section 3, we insert the baseline model to a standard monetary framework of Lagos and Wright (2005) as the day market, and the intermediary and consumers can access liq- uidity in the night (Walrasian) market. [...] We show that at the optimal (interior) liquidity hold- ing, the shadow value of liquidity in the SCF program equals the liquidity price in the market, i.e., the nominal interest rate. [...] Moreover, the more suppliers participating in the program, the higher the aggregate trading volume, and the higher the aggregate welfare. [...] (3) The intermediary pays the cost c to the supplier at the time of production, irrespective of whether she has received the transferred revenue from the supplier. [...] A supply chain finance (SCF) program offered by the middleman stipulates that: (1) the supplier gives the middleman the exclusive right of selling his goods in the retail market, in exchange for a fixed reward (payment) of f , which can be dependent on (λ, c) and is made by the end of the period; and (2) the supplier can request an early payment of c.
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