Monetary Policy Shocks and Production Networks Analysis

This technical report analyzes the role of production networks in the impact of monetary policy shocks across multiple countries, specifically focusing on firm outcomes and the variation of these impacts based on network position. The project investigates how monetary policy shocks propagate through production networks and generate aggregate outcomes such as output and inflation. It is structured around five dimensions, including descriptive statistics, firm heterogeneity, granularity, within-sector heterogeneity, and monetary policy effects. The methodology employs ECB monetary policy shock data and local projections to estimate the impact on firm sales and prices. The report details the effects of monetary policy shocks on real sales and prices, noting that upstream firms experience larger and more persistent effects. Additionally, it discusses the mechanisms of shock propagation through revenue-based and cost-based linkages within production networks, highlighting the significance of network structure in determining exposure to shocks.