Transmission of monetary policy shocks: do input-output interactions matter?

We examine whether input-output interactions among industries impact the transmission of monetary policy shocks through the economy. Using Vector Autoregressive (VAR) methods we find evidence of heterogeneity in the output response to a monetary policy shock in both finished goods industries and intermediate goods industries. While output responses in finished goods industries can be related to heterogeneity in industry characteristics, this relationship is not so obvious for intermediate goods industries. For the intermediate goods industries in our sample we find new evidence of demand-spillover effects that impact the transmission of monetary policy via input-output linkages.