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Federal Reserve Bank of Boston
Working Papers
Monetary policy through production networks: evidence from the stock market
Ali K. Ozdagli
Michael Weber

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.

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Ali K. Ozdagli & Michael Weber, Monetary policy through production networks: evidence from the stock market, Federal Reserve Bank of Boston, Working Papers 17-15, 01 Oct 2017.
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Keywords: input-output linkages; spillover effects; asset prices; high frequency identification
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