Monetary Policy Through Production Networks: Evidence from the Stock Market

63 Pages Posted: 24 May 2017

See all articles by Ali K. Ozdagli

Ali K. Ozdagli

Federal Reserve Banks - Federal Reserve Bank of Boston

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 6 versions of this paper

Date Written: May 2017

Abstract

Monetary policy shocks have a large impact on stock returns in narrow windows around press releases by the Federal Reserve. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is a robust feature of the data and we confirm large indirect effects in realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical strategy. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy.

Suggested Citation

Ozdagli, Ali K. and Weber, Michael, Monetary Policy Through Production Networks: Evidence from the Stock Market (May 2017). NBER Working Paper No. w23424. Available at SSRN: https://ssrn.com/abstract=2971821

Ali K. Ozdagli (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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HOME PAGE: http://sites.google.com/site/ozdagli/

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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