Stock Market Spillovers Via the Global Production Network: Transmission of U.S. Monetary Policy

Galina Hale and Julian di Giovanni

No 1213, Working Papers from Barcelona School of Economics

Abstract: We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks to stock returns of 54 sectors in 26 countries. We first present a conceptual framework based on a standard open-economy production network model that delivers a spillover pattern consistent with a spatial autoregression (SAR) process. We then use the SAR model to decompose the overall impact of U.S. monetary policy on stock returns into a direct and a network effect. We find that up to 80% of the total impact of U.S. monetary policy shocks on average country-sector stock returns are due to the network effect of global production linkages. We further show that U.S. monetary policy shocks have a direct impact predominantly on U.S. sectors and then propagate to the rest of the world through the global production network. Our results are robust to controlling for correlates of the global financial cycle, foreign monetary policy shocks, and to changes in variable definitions and empirical specifications.

Keywords: monetary policy shocks; asset prices; global production network (search for similar items in EconPapers)
JEL-codes: F10 F36 G15 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-cbe, nep-eur and nep-exp
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy (2022)
Working Paper: Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy (2021)
Working Paper: Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy (2020)
Working Paper: Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy (2020)
Working Paper: Stock market spillovers via the global production network: Transmission of U.S. monetary policy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1213

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