The Regional Keynesian Cross

Marco Bellifemine (), Adrien Couturier () and Rustam Jamilov
Additional contact information
Marco Bellifemine: London School of Economics (LSE)
Adrien Couturier: London School of Economics (LSE)

No 2311, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We study the transmission of monetary policy across space in a heterogeneous agents New Keynesian (HANK) model of a monetary union. Using sequence-space methods, we derive the regional Keynesian cross: a characterization of the response of local employment to unexpected changes in interest rates along two dimensions of spatial heterogeneity: (i) openness to national trade and (ii) intertemporal marginal propensities to consume (iMPCs). At the core of our mechanism is an equilibrium complementarity between these two channels, which we validate in the data. We provide an aggregation result and derive the national Keynesian cross that summarizes the role of the joint distribution of regional iMPCs and trade openness across space for the nation-wide response to aggregate shocks. We provide empirical support for our theory using detailed county-level data and identified monetary surprises for the United States. Our main result is that the joint regional distribution of county-level openness to national trade and iMPCs is crucial for the amplification of monetary shocks and the potency of fiscal stabilization policies.

Pages: 64 pages
Date: 2023-03
New Economics Papers: this item is included in nep-dge, nep-geo and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussio ... MDP2023-11-Paper.pdf (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:cfm:wpaper:2311

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().