The credit lines that keep supply chains moving disappear when money gets tight

A new study finds that the credit lines companies use to manage cash flow act like "elastic money" that keeps supply chains from seizing up. When central banks tighten financial conditions, these credit lines shrink, causing firms to cut output and creating ripple effects across entire production networks.

Central banks have long understood that tighter money slows the economy. This paper shows that the effect is not just a slowdown, but a direct hit to the working capital that keeps complex supply chains running. It means that even small shifts in interest rates or currency values can create outsized problems for manufacturers and their suppliers, amplifying economic shocks.