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The Geographic Effects of Monetary Policy

We study the differential regional effects of monetary policy exploiting geographical heterogeneity in income across cities in the United States. We find that prices and employment in poorer cities react more to monetary policy shocks. The results for prices hold for a wide range of narrow consumer expenditure categories. The results are consistent with New Keynesian models that allow for a differential share of hand-to-mouth consumers across regions, but not with models in which regions have different slopes of the Phillips curve. We show that an increase in heterogeneity across cities amplifies the effect of monetary policy on prices and employment.

Keywords: Heterogeneous Effects of Monetary Policy, Monetary Union, TANK
JEL codes: E31; E24; E52; E58; F45.

Suggested citation: Herreño, Juan, and Mathieu Pedemonte. 2022. "The Geographic Effects of Monetary Policy." Working Paper No. 22-15. Federal Reserve Bank of Cleveland.

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