Asymmetric effects of monetary policy shocks across US states

Abstract

This paper provides new empirical evidence of the asymmetric effects of monetary policy shocks across regions. Using a measure of unanticipated changes in the Fed's policy rates over the period 1969Q3–2008Q4 and a local projection method extended to account for spatial effects, we find that monetary policy tightening leads to a long-lasting decrease in states' real personal income, with asymmetric effects across states that are amplified by spatial spillovers. The paper then investigates the role played by several transmission channels finding larger contractionary effects of monetary policy tightening in states with higher manufacturing share, smaller firms, smaller banks and higher house prices.