The COVID-19 Economic Crisis in Mexico through the Lens of a Financial Conditions Index

ABSTRACT

The COVID-19 pandemic not only generated real shocks affect- ing economic activity severely, but also a broad uncertainty that un-leashed an extreme shock to financial markets. In this paper, we focus on the financial dimension of the pandemic from the view- point of an emerging market economy. Accordingly, we estimate a financial conditions index for Mexico since 1993 and find that the acute turmoil generated by the pandemic stands among the four largest episodes of financial distress experienced by the country. In addition, we find evidence suggesting that real variables have re- sponded differently to shocks that worsen financial conditions than to shocks that improve them.