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Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy
Author(s) -
DI GIOVANNI JULIAN,
HALE GALINA
Publication year - 2022
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.13181
Subject(s) - monetary policy , stock (firearms) , economics , monetary economics , vector autoregression , stock market , production (economics) , econometrics , macroeconomics , geography , context (archaeology) , archaeology
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.