Monetary Policy through Production Networks: Evidence from the Stock Market
Ali Ozdagli (),
Michael Weber and
Authors registered in the RePEc Author Service: Michael Weber ()
No 6486, CESifo Working Paper Series from CESifo
Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy.
Keywords: input-output linkages; spillover effects; asset prices; high frequency identification (search for similar items in EconPapers)
JEL-codes: E12 E31 E44 E52 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-net
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Working Paper: Monetary policy through production networks: evidence from the stock market (2017)
Working Paper: Monetary Policy through Production Networks: Evidence from the Stock Market (2017)
Working Paper: Monetary Policy Through Production Networks: Evidence from the Stock Market (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6486
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