摘要：This paper evaluates the role that sectoral comovement plays in the propagation ofmonetary policy shocks on the stock market. In doing so, we introduce a factor-augmentedvector autoregressive model with heterogeneous regime-switching factor loadings, denotedas MS2-FAVAR, that allows us to jointly assess (i) potential changes in the degree ofcomovement between each sector-specifi c stock return and the aggregate stock marketas well as (ii) the propagation of monetary policy shocks taking into account such changesin comovement. We fi nd that the efects of monetary policy shocks on stock returns aresubstantially amplied when industries experience a stronger degree of comovement,suggesting that a more interconnected stock market is more prone to the propagation ofmonetary policy shocks. The MS2-FAVAR model is also well-suited to perform a networkanalysis to characterize linkages in large datasets.
