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The Local Effects of Monetary Policy

Author

Listed:
  • Francis Neville

    () (University of North Carolina, Chapel Hill)

  • Owyang Michael T.

    () (Federal Reserve Bank of St. Louis)

  • Sekhposyan Tatevik

    () (Bank of Canada)

Abstract

Many studies have documented disparities in the regional responses to monetary policy shocks. However, because of computational issues, the literature has often neglected the richest level of disaggregation: the city. In this paper, we estimate the city-level responses to monetary policy shocks in a Bayesian SVAR. The Bayesian SVAR allows us to model the entire panel of metropolitan areas through the imposition of a shrinkage prior. We then seek the origin of the city-level asymmetric responses. We find strong evidence that the population density and the size of the local government sector mitigate the effects of monetary policy on local employment. The roles of the traditional interest rate, equity, and credit channels are marginalized relative to the previous findings based on less-granular definitions of regions. However, the relevance of the interest rate and credit channels appears to be more robust to business cycle uncertainty.

Suggested Citation

  • Francis Neville & Owyang Michael T. & Sekhposyan Tatevik, 2012. "The Local Effects of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(2), pages 1-38, March.
  • Handle: RePEc:bpj:bejmac:v:12:y:2012:i:2:n:3
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    3. Danilo Leiva-Leon, 2017. "Measuring Business Cycles Intra-Synchronization in US: A Regime-switching Interdependence Framework," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 513-545, August.
    4. Igor Ézio Maciel Silva, 2016. "The Differential Regional Effects Of Monetary And Fiscal Policies In Brazil," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42nd Brazilian Economics Meeting] 040, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Rocha, Roberta de Moraes & da Silva, Marcelo Eduardo Alves & Gomes, Sonia Maria Fonseca Pereira Oliveira, 2011. "Por que os estados brasileiros têm reações assimétricas a choques na política monetária?," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 65(4), November.
    6. Ioannides, Yannis M., 2018. "A DMP model of intercity trade," Labour Economics, Elsevier, vol. 50(C), pages 97-111.

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