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The Geographic Effects of Monetary Policy

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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.

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  • Juan Herreño & Mathieu Pedemonte, 2022. "The Geographic Effects of Monetary Policy," Working Papers 22-15, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:94203
    DOI: 10.26509/frbc-wp-202215
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    5. Cravino, Javier & Lan, Ting & Levchenko, Andrei A., 2020. "Price stickiness along the income distribution and the effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 19-32.
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    7. Olivier Coibion, 2012. "Are the Effects of Monetary Policy Shocks Big or Small?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 1-32, April.
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    Cited by:

    1. Katheryn Russ & Jay C. Shambaugh & Sanjay R. Singh, 2023. "Currency Areas, Labor Markets, and Regional Cyclical Sensitivity," NBER Working Papers 31519, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Heterogeneous Effects of Monetary Policy; Monetary Union; TANK;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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