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Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy

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  • JULIAN DI GIOVANNI
  • GALINA HALE

Abstract

We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks on country‐sector stock returns. We estimate a structural spatial autoregression (SAR) model that is consistent with an open‐economy production network framework. Using the SAR model, we decompose the total impact of U.S. monetary policy on global stock returns into direct and network effects. Nearly 70% of the total impact is due to the network effect of global production linkages. Empirical counterfactuals show that shutting down global production linkages halves the total impact of U.S. monetary policy shocks.

Suggested Citation

  • Julian Di Giovanni & Galina Hale, 2022. "Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy," Journal of Finance, American Finance Association, vol. 77(6), pages 3373-3421, December.
    • Handle: RePEc:bla:jfinan:v:77:y:2022:i:6:p:3373-3421
    DOI: 10.1111/jofi.13181
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    Cited by:

    1. Karamysheva, Madina & Seregina, Ekaterina, 2022. "Prudential policies and systemic risk: The role of interconnections," Journal of International Money and Finance, Elsevier, vol. 127(C).
    2. Pinchetti, Marco & Szczepaniak, Andrzej, 2021. "Global spillovers of the Fed information effect," Bank of England working papers 952, Bank of England.
    3. Raphael Auer & Bruce Muneaki Iwadate & Andreas Schrimpf & Alexander F. Wagner, 2022. "Global Production Linkages and Stock Market Comovement," Swiss Finance Institute Research Paper Series 22-18, Swiss Finance Institute.
    4. Lodge, David & Manu, Ana-Simona, 2022. "EME financial conditions: Which global shocks matter?," Journal of International Money and Finance, Elsevier, vol. 120(C).
    5. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2021. "Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets," DEM Working Papers 2021/09, Department of Economics and Management.
    6. ARATA Yoshiyuki & MIYAKAWA Daisuke, 2022. "Demand Shock Propagation Through an Input-output Network in Japan," Discussion papers 22027, Research Institute of Economy, Trade and Industry (RIETI).

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F10 - International Economics - - Trade - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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