Network Effects of Monetary Policy: Evidence from Global Value Chains
Event details
| Date | 27.11.2018 |
| Hour | 12:00 › 13:00 |
| Speaker | Zornitsa TODOROVA, PhD candidate, Bocconi University |
| Location | |
| Category | Conferences - Seminars |
This paper investigates whether monetary policy shocks propagate through production networks in the Euro-area. The network is constructed using a comprehensive time-series of input-output linkages between European industries across 11 countries and the stock market reaction is exploited as a laboratory. High-frequency interest rate data is used to identify monetary policy shocks along two dimensions: one related to the current level of short-term rates (target) and a second related to expectations about the future path of monetary policy (path). First, using an event-study approach around ECB Monetary Policy Announcement dates and novel tools from spatial econometrics, this is the first paper to show that between 40% and 50% of the overall European stock market reaction is due to higher-order network effects. Second, the paper investigates the link between the network structure and the transmission of monetary policy. Industries located in the periphery of the production network react the most to policy shocks, whereas central industries are most influential and serve as an amplification mechanism for the propagation of shocks. Finally, the paper considers the effect of network connections outside of the Euro-area and finds that the response to monetary policy shocks is considerably mitigated for industries located centrally in the global production network.
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Practical information
- Informed public
- Free
Organizer
- Brown Bag Seminar in Finance