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The monetary circuit and the credit channel in Mexico

In: Central Banks and Monetary Regimes in Emerging Countries

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  • Roberto Valencia Arriaga
  • Santiago Capraro Rodríguez

Abstract

The objective of this paper is to develop a Stock-Flow model and a VAR that clarifies the operation of the credit and interest rate channels in Mexico. We question the causality defended by the New Macroeconomic Consensus and argue that in Mexico, the monetary circuit is a clearer framework for understanding the connection between the monetary and real economy. Empirically, the most relevant result that we find is that between the interest rate and the credit channels, the most relevant is the first, since credit has a very weak response to the variation of the monetary policy interest rate. The above is inferred from the results of the variance decomposition of the estimated VAR model.

Suggested Citation

  • Roberto Valencia Arriaga & Santiago Capraro Rodríguez, 2023. "The monetary circuit and the credit channel in Mexico," Chapters, in: Fernando Ferrari-Filho & Liuz Fernando de Paula (ed.), Central Banks and Monetary Regimes in Emerging Countries, chapter 8, pages 147-171, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21116_8
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    Keywords

    Development Studies; Economics and Finance;

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