One for Some or One for All? Taylor Rules and Interregional Heterogeneity
AbstractWe document a novel empirical phenomenon: the U.S. Federal Reserve appears to set interest rates partly in response to regional economic disparities. This result is remarkably robust even after controlling for a wide variety of factors, including the central bankâs information set and a battery of explanatory variables. We argue that this finding likely does not reflect an explicit concern about regional differences on the part of policymakers but instead can be explained by a model with non-linear regional Phillips curves. Consistent with the predictions of this model, we find that the Federal Reserve responds disproportionately to fluctuations in low unemployment states. Alternative explanations based on differential effects of monetary policy across regions or regional preferences on the part of voting members of the FOMC cannot account for this finding.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 44 (2012)
Issue (Month): (03)
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Other versions of this item:
- Olivier Coibion & Daniel Goldstein, 2007. "One for Some or One for All? Taylor Rules and Interregional Heterogeneity," Working Papers 58, Department of Economics, College of William and Mary, revised 19 Sep 2011.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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