The objective of this paper is to analyze the role of credit as a monetary policy transmission mechanism. First we present a theoretical description of the credit channel of a stylized economy and then quantify the effects of the credit channel on the Brazilian economy by estimating a credit demand equation. We, then, focus on the credit channel as a transmitter of demand shocks via firms' balance sheets, functioning as "financial multiplier" of those shocks. Concluding, we analyze the empirical evidence of that "financial multiplier" through which movements in the exchange rate impact the Brazilian economy, a possible explanation for lasting effects of exchange rate crises on economic growth.
credit channel; financial multiplier; exchange rates
