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Monetary policy and racial unemployment rates

  • Madeline Zavodny
  • Tao Zha

When the Federal Open Market Committee began raising interest rates in June 1999 to forestall inflationary pressures, concern mounted that monetary policy moves might slow the pace of economic growth, undoing the employment gains minorities and other disadvantaged groups made during the 1990s. Implicit in such concern is the idea that these groups will be disproportionately affected by an economic slowdown. ; To explore this issue, this article analyzes the effect of exogenous movements in monetary policy and other macroeconomic variables on the overall and black unemployment rates. These exogenous movements are shifts in the federal funds rate not explained by movements in the other variables included in the econometric model estimated here. The analysis focuses on how the implementation of exogenous monetary policy during the 1980s and 1990s affected the black unemployment rate relative to the overall unemployment rate. Results suggest that the black unemployment rate tends to be slightly more responsive to exogenous monetary policy moves than the overall unemployment rate is. However, exogenous monetary policy moves during the 1980s and 1990s did not have significantly more adverse effects on African Americans than on the total population and may even have had positive net effects on African Americans.

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Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2000)
Issue (Month): Q4 ()
Pages: 1-16

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Handle: RePEc:fip:fedaer:y:2000:i:q4:p:1-16:n:v.85no.4
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  1. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-68, November.
  2. Abowd, John M & Killingsworth, Mark R, 1984. "Do Minority-White Unemployment Differences Really Exist?," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(1), pages 64-72, January.
  3. John C. Robertson & Ellis W. Tallman, 1999. "Vector autoregressions: forecasting and reality," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 4-18.
  4. Eric M. Leeper & Tao Zha, 2000. "Assessing simple policy rules: a view from a complete macro model," Working Paper 2000-19, Federal Reserve Bank of Atlanta.
  5. Eric M. Leeper & Tao Zha, 1999. "Modest policy interventions," Working Paper 99-22, Federal Reserve Bank of Atlanta.
  6. Leslie S. Stratton, 1993. "Racial differences in men's unemployment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(3), pages 451-463, April.
  7. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
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