Monetary Policy Through Production Networks: Evidence from the Stock Market

By Ali K. Ozdagli, Michael Weber. Social Science Research Network, 2017

140 citations recorded by the source corpus.

We study the importance of production networks for the transmission of monetary policy using the stock market reaction as laboratory. We attribute 55% to 85% of the overall response to network effects. Large network effects are a robust feature of the data; we document similar patterns in realized fundamentals. Matching sparsity and the first two outdegrees industry-by-industry can explain large network effects. A simple model with intermediate inputs predicts the reaction of stock returns follows a spatial autoregression, which we exploit for our empirical strategy. Our results suggest production networks are an important mechanism for transmitting monetary policy shocks. (JEL E12, E31, E44, E52, G12, G14)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/6f1dad70b25e04dc7f662cf8885a95f6b6f66d1c

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Raphael S. Schoenle
2. E. Pastén
3. Michael Weber
4. Y. Gorodnichenko

Citations in the corpus

• The propagation of monetary policy shocks in a heterogeneous production economy (2018, background): “…networks in different areas of macroeconomics include Bigio and La’O (2017) who study the amplification of financial frictions through production networks, and Ozdagli and Weber (2017), who empirically show I/O linkages are a key propagation channel of monetary policy to the stock market.”