In our previous work we have proposed a dynamic version of the consensus propagation (CP) algorithm introduced by Moallemi and Van Roy. Here, we pursue a system theoretic approach to the analysis of CP. Specifically, we first develop a state-space model for CP and then use this model to prove stability of CP when applied to time-varying processes. We further show how the state-space model can be used to describe the transfer characteristics (spatio-temporal filtering) of CP in terms of attenuation and group delay, both for pure CP and an extended version that uses local linear predictors at the processing nodes. Numerical simulations illustrate our findings.