Upstream firms face more persistent monetary policy effects
Upstream firms experience longer sales contractions after monetary tightening, beyond what firm size explains. Bank of Italy Working Paper No. 1549, published October 20, 2026, documents production networks across five European economies.
Customer reach explains firm scale
Administrative VAT records and tax filings map production networks in Belgium, Estonia, Hungary, Italy and Portugal, using 2019 as the common reference year.
Customer counts explain 42–51 percent of within-industry sales variance; seller characteristics explain 16–22 percent and final demand 1–12 percent.
Firm size closely tracks aggregate influence in the canonical competitive benchmark, but not distance from final demand or primary inputs.
The largest 1 percent of firms capture 45–64 percent of domestic network sales.
Firm networks are sparse, unlike dense sector-level representations, and input shares vary widely within detailed sector pairs.
These patterns persist within industries and across countries.
Demand reductions travel backward
In Belgium, a contractionary shock of approximately 5 basis points lowers real sales about 1.5 percent initially and 2.5 percent around the third quarter.
Upstream firms recover more slowly.
Prices fall about 0.8–0.9 percent around quarters five to six.
Estonian estimates also show delayed upstream contractions.
Applying Belgian responses to other countries, firms with upstreamness above four account for 46 percent of Italy's calibrated sales response and 73 percent of its price response, versus 3 percent and 2 percent in Estonia.
Calibration is not identification
The cross-country results are counterfactual calibrations, not separately estimated causal effects for each economy.
They hold Belgian response coefficients fixed and vary domestic network positions.
Under the linear specification, aggregate differences depend only on sales-weighted mean upstreamness.