Monetary Policy Through Production Networks: Evidence from the Stock Market

65 Pages Posted: 3 Jan 2018 Last revised: 6 Jan 2018

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: 2017-10-01

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

JEL Classification: E12, E31, E44, E52, G12, G14

Suggested Citation

Ozdagli, Ali K. and Weber, Michael, Monetary Policy Through Production Networks: Evidence from the Stock Market (2017-10-01). FRB of Boston Working Paper No. 17-15. Available at SSRN: https://ssrn.com/abstract=3095891

Ali K. Ozdagli (Contact Author)

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

600 Atlantic Avenue
Boston, MA 02210
United States

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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