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Monetary policy and production networks: an empirical investigation

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  • Ghassibe, Mishel

Abstract

This paper offers novel econometric evidence on the contribution of production networks to the effect of monetary shocks on real macroeconomic variables. In particular, we construct a highly disaggregated monthly dataset on US final sectoral consumption to estimate that at least 30% of the effect of monetary shocks on aggregate consumption comes from amplification through input-output linkages, which facilitate downstream propagation of price rigidity. At the sectoral level, we find that the network effect rises in the frequency of price non-adjustment and intermediates intensity. Moreover, the network effect is highly concentrated: sectors that jointly account for 17% of our sample aggregate consumption account for 98% of the amplification. In order to develop our econometric specification, we obtain novel analytical sector-level solutions to a forward-looking New Keynesian model with asymmetric input-output linkages.

Suggested Citation

  • Ghassibe, Mishel, 2021. "Monetary policy and production networks: an empirical investigation," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 21-39.
    • Handle: RePEc:eee:moneco:v:119:y:2021:i:c:p:21-39
    DOI: 10.1016/j.jmoneco.2021.02.002
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    Cited by:

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    2. Francesco Ferrante & Sebastian Graves & Matteo Iacoviello, 2023. "The Inflationary Effects of Sectoral Reallocation," International Finance Discussion Papers 1369, Board of Governors of the Federal Reserve System (U.S.).
    3. Almut Balleer & Marvin Noeller, 2023. "Monetary Policy in the Presence of Supply Constraints: Evidence from German Firm-Level Data," CESifo Working Paper Series 10261, CESifo.
    4. Petre Caraiani, 2023. "Monetary Policy Shocks and Input–Output Characteristics of Production Networks," JRFM, MDPI, vol. 16(3), pages 1-13, March.
    5. Hummaira Jabeen, 2022. "Monetary Policy Shock Transmission in Emerging Markets," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(4), pages 379-390, December.
    6. Brancaccio, Emiliano & Giammetti, Raffaele & Lopreite, Milena & Puliga, Michelangelo, 2019. "Monetary policy, crisis and capital centralization in corporate ownership and control networks: A B-Var analysis," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 55-66.
    7. Jennifer La'O & Alireza Tahbaz‐Salehi, 2022. "Optimal Monetary Policy in Production Networks," Econometrica, Econometric Society, vol. 90(3), pages 1295-1336, May.
    8. Hassan Afrouzi & Saroj Bhattarai, 2023. "Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach," CESifo Working Paper Series 10416, CESifo.

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    More about this item

    Keywords

    Production networks; Monetary policy shocks;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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