Monetary policy transmission under macrofinancial uncertainty: evidence of the Mexican monetary market

Abstract

This article analyzes the transmission mechanisms of monetary policy in México during periods of heightened macrofinancial uncertainty, examining dynamic interrelationships between the target rate from Banxico, Interbank Equilibrium Interest Rate (28 day IEIR), Mexican Federal Treasury Certificates (28 day CETES) and inflation. Utilizing daily and monthly data from Sistema de Información Económica (SIE) Economic Information System for the 1996-2026 period from Banco de México (BANXICO), Johansen cointegration tests, Vector Error Correction Models (VECM), forecast error variance decomposition (FEVD) and structural stability tests were applied. Results confirm the existence of a cointegrating relationship between money market variables, revealing IEIR and CETES convergence towards a long term equilibrium with a 0.896 coefficient. The error correction mechanism shows that CETES absorb 17.4% of the weekly imbalances, while IEIR acts as a weakly exogenous variable. Variance decomposition reveals that shocks in the target rate explain up to 14.46% of the future inflation variability. Nevertheless, during high-uncertainty episodes (2020, 2022-2023), adjustment coefficients weaken, suggesting an asymmetric monetary transmission. The proposal of an integrated framework that explains the monetary channel in Mexico, identifying that the transmission operates efficiently under normal conditions but it slows down during a crisis, with implications for monetary policy design in contexts of volatility is made.