Structural breaks and regional disparities in the transmission of monetary policy

Michael Owyang and Howard Wall

No 2003-008, Working Papers from Federal Reserve Bank of St. Louis

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.

Keywords: Monetary policy; Regional economics; Economic conditions (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-geo and nep-mon
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