A Bayesian vector-autoregressive application with time-varying parameters on the monetary shocks–production network nexus

Abstract

Transmission channels from monetary shocks might be identified by studying the features of the production network. The main aim of this paper is to provide insights about the role of production network into the propagation of monetary policy shocks in G7 economies. Time-varying Bayesian vector-autoregressions were built to compute impulse response functions of output to monetary policy shocks in these countries. Panel Auto-Regressive Distributed Lag Bound Approach based on Mean-Group estimator was used to assess the long and short-run connections between production network structure and various shocks associated to monetary policy in the period 2000–2018 and during the Great Recession (2007–2009). The results show that upstreamness is more significant than downstremness in the period 2000–2018, while the financial sector significantly contributed to the spread of various monetary shocks during the Great Recession.

Keywords

• Bayesian VAR model
• panel ARDL model
• production network
• monetary policy shocks
• C51
• C53