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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:

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    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. Alexander Rodnyansky & Yannick Timmer & Naoki Yago, 2023. "Intervening against the Fed," CESifo Working Paper Series 10575, CESifo.
    5. Rodnyansky, A. & Timmer, Y. & Yago, N., 2023. "Intervening against the Fed," Cambridge Working Papers in Economics 2357, Faculty of Economics, University of Cambridge.
    6. Pinchetti, Marco & Szczepaniak, Andrzej, 2021. "Global spillovers of the Fed information effect," Bank of England working papers 952, Bank of England.
    7. Falk Bräuning & Viacheslav Sheremirov, 2023. "The Transmission Mechanisms of International Business Cycles: International Trade and the Foreign Effects of US Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 300-325, March.
    8. Vidal-Llana, Xenxo & Uribe, Jorge M. & Guillén, Montserrat, 2023. "European stock market volatility connectedness: The role of country and sector membership," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
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    10. 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.
    11. Hötte, Kerstin, 2023. "Demand-pull, technology-push, and the direction of technological change," Research Policy, Elsevier, vol. 52(5).
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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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