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Credit Supply Shocks During a Nonfinancial Recession
Credit supply in Mexico tightened during the nonfinancial COVID-19 recession, not due to banks' financial health but primarily due to heightened risk aversion.Negative credit supply shocks led to reduced firm employment and increased firm exit probability, especially among financially constrained firms (those that were smaller, younger and had high external financial dependence).The employment decline was largely driven by increased job outflows (separations) rather than reduced job inflows (new hires), particularly for women and low-tenure and temporary workers in small, young firms.Credit ...