Review of Financial Studies Vol. 39 No. 5 2026
Monetary Policy through Production Networks: Evidence from the Stock Market
Abstract
We study the importance of production networks for the transmission of monetary policy using the stock market reaction as laboratory. We attribute 55% to 85% of the overall response to network effects. Large network effects are a robust feature of the data; we document similar patterns in realized fundamentals. Matching sparsity and the first two outdegrees industry-by-industry can explain large network effects. A simple model with intermediate inputs predicts the reaction of stock returns follows a spatial autoregression, which we exploit for our empirical strategy. Our results suggest production networks are an important mechanism for transmitting monetary policy shocks.
- DOI
- 10.1093/rfs/hhaf106
- Volume
- 39
- Issue
- 5
- Pages
- 1411-1462
- Language
- en
- Sources
- openalex crossref