| This dissertation investigates whether differences in industry mix across a nation's regions explain why monetary policy has asymmetric effects on those regions. Theories of the monetary transmission mechanism offer several possible reasons why monetary policy actions can be expected to have differential effects on regions of the same nation. One possible reason is that regions have different industry mixes. This fact, coupled with the empirical finding that the interest rate sensitivity in the demand for products differs across industries, allows one possible way for monetary policy actions to have differential effects on regions. This explanation for the differential effects of monetary policy views the monetary transmission mechanism as working through an interest rate channel. Other possible explanations for the asymmetric effects of monetary policy, based on credit channel theories of the monetary transmission mechanism, have found only weak support from other researchers.;Using monthly data on industry employment for each of the 50 U.S. states over the period 1960:01 to 1998:03 and employing a vector autoregression (VAR) methodology, I find both central tenets of the industry mix explanation to be true. However, I find that other region-specific factors are also important in explaining the differential effects of monetary policy. Finally, I find no evidence that credit channel-based explanations can account for the asymmetric effects of monetary policy. |
