The Differential Regional Effects of Monetary Policy: Evidence from the U.S. States

In this paper we use time-series techniques to examine whether monetary policy had symmetric effects across U.S. states during the 1958:1–1992:4 period. Impulse response functions from estimated structural vector autoregression models reveal differences in policy responses, which in some cases are substantial. We provide evidence on the reasons for the measured cross-state differential policy responses. The size of a state's response is significantly related to industry-mix variables, providing evidence of an interest rate channel for monetary policy, although the state-level data offer no support for recently advanced credit-channel theories.