Monetary policy through production networks: evidence from the stock market

Ali Ozdagli and Michael Weber

No 17-15, Working Papers from Federal Reserve Bank of Boston

Abstract: Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production networks might be an important mechanism for transmitting 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)
Pages: 65 pages
Date: 2017-10-01
New Economics Papers: this item is included in nep-mac, nep-mon and nep-net
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Citations: View citations in EconPapers (66)

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Related works:
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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