The industry effects of monetary policy and their welfare implications

Abstract

Economic theory provides at least two explanations for differential regional effects of a common monetary policy. The traditional money view focuses on regional differences in industry mix. Alternatively, the more recent credit view emphasizes differences in financial structure. This paper aims to make two contributions. First, building on the work by Carlino and DeFina (1998), I estimate impulse responses of sector earnings to monetary policy shocks for regions of the United States. An analysis of variance shows that the sector effect dominates the regional effect, providing further evidence for the importance of the industry mix. Second, the paper addresses the welfare implications of industry effects of monetary policy. One would expect industries suffering disproportionately from the impact of monetarypolicy to compensate their employees and shareholders. The US evidence on compensating wage and return differentials is, however, mixed. JEL Codes: E52, L16

Keywords

• Monetary Policy
• Monetary
• Money
• Policy