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Structural breaks and regional disparities in the transmission of monetary policy

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  • Michael T. Owyang
  • Howard J. Wall

Abstract

Using a regional VAR, we find large differences in the effects of monetary policy shocks across regions of the United States. We also find that the region-level effects of monetary policy differ a great deal between the pre-Volcker and Volcker-Greenspan periods in terms of their depth and length. The two sample periods also yield very different rankings of the regions in terms of the effects of monetary policy. Our regional VAR also suggests that aggregate VARs that ignore regional variations can suffer from severe aggregation bias. We use the results of our regional VAR to find evidence that recession depth related to the banking concentration and that the total cost of recession is related to the industry mix. Finally, we demonstrate that the differences between the two sample periods are due to changes in the mechanism by which monetary policy shocks are propagated.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2003-008.

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Date of creation: 2004
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Handle: RePEc:fip:fedlwp:2003-008

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Keywords: Monetary policy ; Regional economics ; Economic conditions;

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References

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  1. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Michael S. Hanson & Erik Hurst & Ki Young Park, 2006. "Does Monetary Policy Help Least Those Who Need It Most?," Wesleyan Economics Working Papers 2006-006, Wesleyan University, Department of Economics.
  2. Howard J. Wall & Gylfi Zoega, 2004. "U. S. regional business cycles and the natural rate of unemployment," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 23-32.
  3. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA.
  4. Ridhwan, M.M. & Nijkamp, P. & Rietveld, P. & Groot, H.L.F. de, 2008. "Regional development and monetary policy : a review of the role of monetary unions, capital mobility and locational effects," Serie Research Memoranda 0007, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. Michael T. Owyang & Jeremy M. Piger & Howard J. Wall, 2004. "Business cycle phases in U.S. states," Working Papers 2003-011, Federal Reserve Bank of St. Louis.
  6. Theodore M. Crone, 2003. "An alternative definition of economic regions in the U.S. based on similarities in state business cycles," Working Papers 03-23, Federal Reserve Bank of Philadelphia.

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