Banxico working paper tackles ‘loan puzzle’

Study finds that banks increase credit to low-delinquency sectors following policy tightening

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The “loan puzzle”, whereby bank credit increases following a rise in short-term interest rates, appears to concern a reallocation of lending towards borrowers with lower delinquency rates, research from the Bank of Mexico (Banxico) has found.

The working paper, published last month, finds that a positive short-term interest rate shock causes banks to temporarily increase credit to sectors with low delinquency rates. At the same time, a tightening of monetary policy results in a contraction in

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