THE CREDIT CHANNEL DURING THE POST-PANDEMIC PERIOD
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Abstract
The credit channel in Mexico has been widely studied; however, there is still no clear consensus regarding its relevance as a transmission mechanism of monetary policy. This debate gained renewed importance during the post-pandemic recovery period, in which strong credit growth coexisted with a highly restrictive monetary stance. In this paper, we explore whether the strength of the credit channel in Mexico varies over time in a nonlinear fashion. We document that the effect of monetary policy on credit tends to intensify during periods of economic weakness, when certain amplifying mechanisms within the banking sector may become more pronounced. A historical decomposition of the main drivers behind credit expansion during the period under study suggests that, while the restrictive monetary stance negatively affected credit dynamics, other factors related to the recovery of economic activity may have played a more prominent role.
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References
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