The Regional Keynesian Cross
We study monetary policy transmission across space. Empirically, we show that two channels explain a sizable portion of the variation in the regional effects of identified U.S. monetary policy shocks: local marginal propensities to consume (MPCs), as captured by household wealth, and industry compos...
| Main Authors: | , , |
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| Format: | Working paper |
| Language: | English |
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University of Oxford
2022
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| _version_ | 1797109200273276928 |
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| author | Bellifemine, M Couturier, A Jamilov, R |
| author_facet | Bellifemine, M Couturier, A Jamilov, R |
| author_sort | Bellifemine, M |
| collection | OXFORD |
| description | We study monetary policy transmission across space. Empirically, we show that two channels explain a sizable portion of the variation in the regional effects of identified U.S. monetary policy shocks: local marginal propensities to consume (MPCs), as captured by household wealth, and industry composition, as measured by the local share of non-tradable employment. Theoretically, we develop a heterogeneous agents New Keynesian (HANK) model of a monetary union with two-layered regional heterogeneity in household and industry composition. We provide a sequence-space characterization of the response of local employment to unexpected changes in interest rates as a function of intertemporal MPCs and industry composition: the regional Keynesian cross. Central to our theory is an equilibrium complementarity between these two sources of regional heterogeneity. We provide direct empirical evidence of this household industry complementarity, thus validating our key model mechanism. Quantitatively, reactions from fiscal authorities and the rest of the nation are key determining factors of the aggregate regional economic response. |
| first_indexed | 2024-03-07T07:38:34Z |
| format | Working paper |
| id | oxford-uuid:d2635447-2d6c-4cae-902d-74775e8109ca |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T07:38:34Z |
| publishDate | 2022 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:d2635447-2d6c-4cae-902d-74775e8109ca2023-03-30T08:22:58ZThe Regional Keynesian CrossWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:d2635447-2d6c-4cae-902d-74775e8109caEnglishSymplectic ElementsUniversity of Oxford2022Bellifemine, MCouturier, AJamilov, RWe study monetary policy transmission across space. Empirically, we show that two channels explain a sizable portion of the variation in the regional effects of identified U.S. monetary policy shocks: local marginal propensities to consume (MPCs), as captured by household wealth, and industry composition, as measured by the local share of non-tradable employment. Theoretically, we develop a heterogeneous agents New Keynesian (HANK) model of a monetary union with two-layered regional heterogeneity in household and industry composition. We provide a sequence-space characterization of the response of local employment to unexpected changes in interest rates as a function of intertemporal MPCs and industry composition: the regional Keynesian cross. Central to our theory is an equilibrium complementarity between these two sources of regional heterogeneity. We provide direct empirical evidence of this household industry complementarity, thus validating our key model mechanism. Quantitatively, reactions from fiscal authorities and the rest of the nation are key determining factors of the aggregate regional economic response. |
| spellingShingle | Bellifemine, M Couturier, A Jamilov, R The Regional Keynesian Cross |
| title | The Regional Keynesian Cross |
| title_full | The Regional Keynesian Cross |
| title_fullStr | The Regional Keynesian Cross |
| title_full_unstemmed | The Regional Keynesian Cross |
| title_short | The Regional Keynesian Cross |
| title_sort | regional keynesian cross |
| work_keys_str_mv | AT bellifeminem theregionalkeynesiancross AT couturiera theregionalkeynesiancross AT jamilovr theregionalkeynesiancross AT bellifeminem regionalkeynesiancross AT couturiera regionalkeynesiancross AT jamilovr regionalkeynesiancross |