Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy. Terms of use: Documents in EconStor mayJEL-Codes: E120, E310, E440, E520, G120, G140.Keywords: input-output linkages, spillover effects, asset prices, high frequency identification. Ali Ozdagli I IntroductionUnderstanding how monetary policy affects the broader economy necessarily entails understanding both how policy actions affect key financial markets, as well as how changes in asset prices and returns in these markets in turn affect the behavior of households, firms, and other decision makers. Ben S. Bernanke (2003) The objective of central banks around the world is to affect real consumption, investment, and GDP. Monetary policy can affect those real variables, but only indirectly. Central banks directly and immediately affect financial markets through interest rates, which then influences households' consumption decisions and firms' investment decisions.Empirically, financial markets react immediately and strongly to central banks' actions. Bernanke and Kuttner (2005) show an unanticipated 25-basis-point decrease in the federal funds rate leads to an increase in the CRSP value-weighted index of more than 1% within minutes of the FOMC announcement.1 Despite the consensus on the large and immediate impact of monetary policy on financial markets, we know very little about how the monetary policy actions propagate through the economy.A growing literature in macroeconomics argues microeconomic shocks might propagate through the production network, and contribute to aggregate fluctuations.In this paper, we study theoretically and empirically whether the production ne...

We examine both theoretically and empirically a mechanism through which outstanding bank loans a¤ect the …rm balance sheet channel of monetary policy transmission. Unlike other debt, most bank loans have ‡oating rates mechanically tied to monetary policy rates. Hence, monetary policy-induced changes to ‡oating rates a¤ect the liquidity, balance sheet strength, and investment of …nancially constrained …rms that use bank debt. We show that …rms-especially …nancially constrained …rms-with more unhedged bank debt display a stronger sensitivity of their stock price, cash holdings, sales, inventory, and …xed capital investment to monetary policy. This e¤ect disappears when policy rates are at the zero lower bound, which further supports the ‡oating rate mechanism and reveals a new limitation of unconventional monetary policy. We argue that the ‡oating rate channel can have a signi…cant macroeconomic e¤ect due to the large size of the aggregate stock of unhedged ‡oating-rate business debt, an e¤ect that is at least as important as the bank lending channel that operates through new loans.

This paper presents a dynamic model of the firm with risk-free debt contracts, investment irreversibility, and debt restructuring costs. The model fits several stylized facts of corporate finance and asset pricing: First, book leverage is constant across different book-to-market portfolios, whereas market leverage differs significantly. Second, changes in market leverage are mainly caused by changes in stock prices rather than by changes in debt. Third, when the model is calibrated to fit the cross-sectional distribution of book-to-market ratios, it explains the return differences across different firms. The model also shows that investment irreversibility alone cannot generate the cross-sectional patterns observed in stock returns and that leverage is the main source of the value premium.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy. Terms of use: Documents in EconStor mayJEL-Codes: E120, E310, E440, E520, G120, G140.Keywords: input-output linkages, spillover effects, asset prices, high frequency identification. Ali Ozdagli I IntroductionUnderstanding how monetary policy affects the broader economy necessarily entails understanding both how policy actions affect key financial markets, as well as how changes in asset prices and returns in these markets in turn affect the behavior of households, firms, and other decision makers. Ben S. Bernanke (2003) The objective of central banks around the world is to affect real consumption, investment, and GDP. Monetary policy can affect those real variables, but only indirectly. Central banks directly and immediately affect financial markets through interest rates, which then influences households' consumption decisions and firms' investment decisions.Empirically, financial markets react immediately and strongly to central banks' actions. Bernanke and Kuttner (2005) show an unanticipated 25-basis-point decrease in the federal funds rate leads to an increase in the CRSP value-weighted index of more than 1% within minutes of the FOMC announcement.1 Despite the consensus on the large and immediate impact of monetary policy on financial markets, we know very little about how the monetary policy actions propagate through the economy.A growing literature in macroeconomics argues microeconomic shocks might propagate through the production network, and contribute to aggregate fluctuations.In this paper, we study theoretically and empirically whether the production ne...

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