One for Some or One for All? Taylor Rules and Interregional Heterogeneity

Olivier Coibion and Daniel Goldstein ()
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Daniel Goldstein: Department of Economics, Pennsylvania State University

No 58, Working Papers from Department of Economics, College of William and Mary

Abstract: We document a novel empirical phenomenon: the U.S. Federal Reserve appears to set interest rates partly in response to regional economic disparities. This result is remarkably robust even after controlling for a wide variety of factors, including the central bank’s information set and a battery of explanatory variables. We argue that this finding likely does not reflect an explicit concern about regional differences on the part of policymakers but instead can be explained by a model with non-linear regional Phillips curves. Consistent with the predictions of this model, we find that the Federal Reserve responds disproportionately to fluctuations in low unemployment states. Alternative explanations based on differential effects of monetary policy across regions or regional preferences on the part of voting members of the FOMC cannot account for this finding.

Keywords: Regional Heterogeneity; Monetary Policy; Taylor Rules (search for similar items in EconPapers)
JEL-codes: E5 E6 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-09-11, Revised 2011-09-19
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: One for Some or One for All? Taylor Rules and Interregional Heterogeneity (2012)
Journal Article: One for Some or One for All? Taylor Rules and Interregional Heterogeneity (2012)
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