We extend the econometric literature on the role of production networks in the propagation of monetary policy shocks along two dimensions. First, we allow for time-varying industry-specific responses, reflecting non-linearities and heterogeneity in direct transmission channels. Second, we allow for time-varying network structures and dependence. This captures both variation in the structure of the production network and differences in cross-industry demand elasticities. Spillover effects among industries appear to be important in periods of elevated economic and financial uncertainty, often coinciding with tight credit market conditions and financial stress. Cross-sectional differentials can be explained by how close industries are to end-consumers.
Bibliographical noteJEL: C23, C32, O47, R11; Keywords: production networks, monetary policy shocks, high-frequency identification, spatio-temporal modeling
Fields of Science and Technology Classification 2012
- 502 Economics