The Regional Keynesian Cross

Marco Bellifemine, Adrien Couturier and Rustam Jamilov

No 995, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: 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.

Date: 2022-12-24
New Economics Papers: this item is included in nep-cba, nep-dge, nep-geo, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:d2635447-2d6c-4cae-902d-74775e8109ca (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:995

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).