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

Author

Listed:
  • Lorenzo Menna

    (Banco de México)

  • Martín Tobal

    (Banco de México)

  • Alejandro Werner

    (Georgetown Americas Institute)

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.

Suggested Citation

  • Lorenzo Menna & Martín Tobal & Alejandro Werner, 2026. "Monetary Policy Transmission in an Emerging Market: The Financial-Friction Channel VS The Interest-Rate Channel," Working Papers 394, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:394
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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