Federal Reserve Bank of Boston
600 Atlantic Avenue, Boston, MA 02210
Institutional Affiliation: Federal Reserve Bank of Boston
Information about this author at RePEc
NBER Working Papers and Publications
|May 2017||Monetary Policy through Production Networks: Evidence from the Stock Market|
with : w23424
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.