  Understanding disaggregate channels in the transmission of monetary policy is
of crucial importance for effectively implementing policy measures. We extend
the empirical econometric literature on the role of production networks in the
propagation of shocks along two dimensions. First, we allow for
industry-specific responses that vary over time, reflecting non-linearities and
cross-sectional heterogeneities in direct transmission channels. Second, we
allow for time-varying network structures and dependence. This feature captures
both variation in the structure of the production network, but also differences
in cross-industry demand elasticities. We find that impacts vary substantially
over time and the cross-section. Higher-order effects appear to be particularly
important in periods of economic and financial uncertainty, often coinciding
with tight credit market conditions and financial stress. Differentials in
industry-specific responses can be explained by how close the respective
industries are to end-consumers.
