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 Dallas

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 6 versions of this paper

Date Written: October, 2017

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 (October, 2017). 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 Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
64
Abstract Views
742
Rank
29,009
PlumX Metrics