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Monetary Policy Through Production Networks: Evidence from the Stock Market

Michael Weber () and Ali Ozdagli

No 148, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: 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. A one percentage point higher than expected Federal Funds rate leads to a drop in the stock market by 4 percentage points within a 30 minutes event window. We decompose the overall event into a direct (demand) effect and an indirect (network) effect using spatial autoregressions. We use the empirical input-output structure from the Bureau of Economic Analysis to construct a spatial-weighting matrix. We attribute 50% to 85% of the overall effect to indirect effects. The effect is robust to different sample periods, event windows, type of announcements, and is symmetric in the shock sign. We rationalize our findings in a simple model with intermediate inputs. Our findings indicate that production networks might not only be important for the propagation of idiosyncratic shocks but might also be a propagation mechanism of monetary policy to the real economy.

New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-net
Date: 2016
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https://economicdynamics.org/meetpapers/2016/paper_148.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy through Production Networks: Evidence from the Stock Market (2017) Downloads
Working Paper: Monetary Policy through Production Networks: Evidence from the Stock Market (2017) Downloads
Working Paper: Monetary policy through production networks: evidence from the stock market (2017) Downloads
Working Paper: Monetary Policy through Production Networks: Evidence from the Stock Market (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:148

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More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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