Asymmetric effects of monetary policy shocks across US states

Abstract

This paper provides new empirical evidence of the asymmetric effects of monetary policy shocks across regions. Using a measure of unanticipated changes in the Fed's policy rates over the period 1969Q3–2008Q4 and a local projection method extended to account for spatial effects, we find that monetary policy tightening leads to a long‐lasting decrease in states' real personal income, with asymmetric effects across states that are amplified by spatial spillovers. The paper then investigates the role played by several transmission channels finding larger contractionary effects of monetary policy tightening in states with higher manufacturing share, smaller firms, smaller banks and higher house prices.

Monetary Policy and Regional Inequality

“…For literature on the US, see e.g. DeFina (1998, 1999); DiGiacinto (2003);Owyang and Wall (2009); Beckworth (2010);Furceri et al (2019);Leahy and Thapar (2019). For literature on Europe, see e.g Arnold (2001)…”

Contributions by Italian scholars to regional science

“…The seldom analysed theme of the differentiated regional effects of macroeconomic shocks deriving from monetary or fiscal policies was taken up directly in two cases: by Furceri, Mazzola, and Pizzuto (), in the case of restrictive monetary policies, and by Camagni and Capello (), in the case of austerity policies. This latter paper delivered also an important message concerning the alleged trade‐off between competitiveness and cohesion (or, in previous times, efficiency and equity): concentrating policy efforts on the most suitable places within lower‐income regions may at the same time yield more cohesion and more aggregate growth because it activates a more widely dispersed territorial capital that in a concentration strategy would remain idle.…”

State-level Taylor rule and monetary policy stress

“…The role of the US as a benchmark OCA, however, has been questioned by (admittedly scarce) papers examining this issue, such as Carlino and de Fina (1999), who find substantial cross-state differences in responses to the national monetary policy, Crowley (2001), who explicitly concluded that the US is not an OCA or Chrysanthidou et al (2013), who broadly confirmed this finding. More recently, Furceri et al (2019) show that monetary policy has diverse influence on different states and also spatial connectivity matters. According to our knowledge, this is the only study on monetary policy effects, where spatial effects are accounted for and found very important.…”