Monetary Policy Transmission in an Emerging Market: The Financial-Friction Channel VS The Interest-Rate Channel

Lorenzo Menna, Martín Tobal and Alejandro Werner
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Lorenzo Menna: Banco de México
Martín Tobal: Banco de México
Alejandro Werner: Georgetown Americas Institute

No 394, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We provide the first micro-level evidence on the mechanisms through which monetary policy transmits in an emerging market. Using high-frequency identification and a dataset covering over 10 million firm-month bank-loan observations, we move beyond only documenting policy effects to identify the transmission itself in Mexico. Credit falls earlier, more sharply, and persistently for young firms, SMEs, and firms with recent delinquencies, consistent with a financial-frictions channel. Credit to durable-goods producers also declines more, consistent with an interest-rate channel. However, unlike the pattern documented for advanced economies, the financial-frictions channel dominates. Further evidence suggests that this dominance extends to employment growth.

Keywords: monetary policy, financial frictions, emerging markets; credit growth; bank capitalization (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 O54 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2026-04
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:394

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