How important is the credit channel in the transmission of monetary policy in Mexico?

Raul Ibarra

Applied Economics, 2016, vol. 48, issue 36, 3462-3484

Abstract: This article empirically examines the importance of the credit channel of monetary policy in Mexico for the period 2004--2013. We estimate a vector autoregressive (VAR) model to analyse the effects of a monetary policy shock on real output, and we also use a threshold VAR model to investigate asymmetric effects of contractionary and expansionary policies. The empirical results suggest that a contractionary monetary policy results in a fall in the supply of loans together with an increase in the spread between the lending and deposit rate. To the extent that some borrowers are dependent on bank loans for credit, the reduced supply of loans amplifies the effects of monetary policy on output associated with the traditional interest rate channel. Our results also suggest that the importance of the credit channel is larger for contractionary shocks than for expansionary shocks.

Date: 2016
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DOI: 10.1080/00036846.2016.1139680

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