Bayesian state-space modeling for analyzing heterogeneous network effects of US monetary policy

Hauzenberger, Niko and Pfarrhofer, Michael (2021) Bayesian state-space modeling for analyzing heterogeneous network effects of US monetary policy. Scandinavian Journal of Economics, 123 (4). pp. 1261-1291. ISSN 0347-0520 (https://doi.org/10.1111/sjoe.12436)

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Abstract

We extend the econometric literature on the role of production networks in the propagation of monetary policy shocks along two dimensions. First, we allow for time-varying industry-specific responses, reflecting non-linearities and heterogeneity in direct transmission channels. Second, we allow for time-varying network structures and dependence. This captures both variation in the structure of the production network and differences in cross-industry demand elasticities. Spillover effects among industries appear to be important in periods of elevated economic and financial uncertainty, often coinciding with tight credit market conditions and financial stress. Cross-sectional differentials can be explained by how close industries are to end-consumers.

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