The Geographic Effects of Monetary Policy

Abstract

We study the differential regional effects of monetary policy exploiting geographical heterogeneity in income across cities in the United States. We find that prices and employment in poorer cities react more to monetary policy shocks. The results for prices hold for a wide range of narrow consumer expenditure categories. The results are consistent with New Keynesian models that allow for a differential share of hand-to-mouth consumers across regions, but not with models in which regions have different slopes of the Phillips curve. We show that an increase in heterogeneity across cities amplifies the effect of monetary policy on prices and employment.

Quantifying Reduced‐Form Evidence on Collateral Constraints

“…For instance, a large literature in banking estimates how credit supply shocks affect corporate borrowing and investment (since at least Peek and Rosengren (2000)). Our methodology can be adapted by explicitly modeling bank behavior and targeting these moments, an approach followed by Herreño (2021). Identifying the effect of cash flow shocks on corporate investment would be another natural candidate.…”

Tracing the International Transmission of a Crisis through Multinational Firms

“…Second, we analyze how internal capital flows across 4 The impact numbers reported here may not equal aggregate changes because of general equilibrium effects, as we detail below. However, recent research suggests that aggregate changes may be of the same order of magnitude or larger than the negative impacts reported by us (Chodorow-Reich (2014), Huber (2018), Herreño (2020), Sraer and Thesmar (2023)).…”

“…This suggests that aggregate losses may be even larger than the impact numbers in Table IX. Indeed, calibrated models in Chodorow-Reich (2014), Herreño (2020), and Sraer and Thesmar (2023) suggest that general equilibrium effects are likely to harm the growth of unaffected affiliates or have at most a weakly positive effect.…”

The Long-Term Earnings’ Effects of a Credit Market Disruption

“…Although in our analysis we use the universe of private sector firms, our diff-in-diff estimates should be interpreted as relative rather than aggregate effects, i.e., as the impact on more exposed firms relative to less exposed ones, as Herreño (2021) shows. If the credit shock also affects less exposed firms, because of some general equilibrium responses, this would not be captured by our diff-in-diff estimates.…”

“…Naturally, our diff-in-diff estimates should be interpreted as relative rather than aggre-gate effects -see Herreño (2021) for a discussion. To understand the relevance of general equilibrium effects, we study spillovers on firm size growth following the methodology proposed by Huber (2022).…”