The Differential Regional Effects of Monetary Policy: Evidence from the U.S. States

Abstract

In this paper we use time‐series techniques to examine whether monetary policy had symmetric effects across U.S. states during the 1958:1–1992:4 period. Impulse response functions from estimated structural vector autoregression models reveal differences in policy responses, which in some cases are substantial. We provide evidence on the reasons for the measured cross‐state differential policy responses. The size of a state's response is significantly related to industry‐mix variables, providing evidence of an interest rate channel for monetary policy, although the state‐level data offer no support for recently advanced credit‐channel theories.

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