Monetary policy and regional inequality

Oliver de Groot, Sebastian Hauptmeier, Fédéric Holm-Hadulla and Katerina Nikalexi

No 2385, Working Paper Series from European Central Bank

Abstract: We study the impact of monetary policy on regional inequality using granular data on economic activity at the city- and county-level in Europe. We document pronounced heterogeneity in the regional patterns of monetary policy transmission. The output response to monetary policy shocks is stronger and more persistent in poorer regions, with the difference becoming particularly pronounced in the tails of the distribution. Regions in the lower parts of the distribution exhibit hysteresis, consisting of long-lived adjustments in employment and labor productivity in response to the shocks. As a consequence, policy tightening aggravates regional inequality and policy easing mitigates it. Finally we provide a structural interpretation of our results using a New Keynesian Currency Union Model with hysteresis effects. JEL Classification: C32, E32, E52

Keywords: endogenous technological change; local projections; monetary policy; new Keynesian; quantile regressions; regional heterogeneity (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ure
Note: 2712344
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Monetary Policy and Regional Inequality (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202385

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