The Effect of Regional Economic Conditions on U.S. Monetary Policy

Journal of International Trade & Commerce, Vol.14, No.1, pp.93-102

10 Pages Posted: 24 May 2018

See all articles by Paul J. Pieper

Paul J. Pieper

University of Illinois at Chicago - Department of Economics

Sang-In Hwang

Gangneung-Wonju National University - Department of Internaional Commerce and Area Studies

Date Written: February 21, 2018

Abstract

U.S. monetary policy is determined primarily by the Federal Open Market Committee. This paper examined whether the Reserve Bank president’s voting behavior at the FOMC is influenced by economic conditions in their district, using new and precise estimates of district unemployment and a longer and more recent time series. We find that the district unemployment rate is the primary determinant of Regional Bank Presidents’ probability of dissension from FOMC policy decisions. In our baseline regression, a one percent increase in the district unemployment rate relative to the national rate increases the probability of a tightening dissension by 1.3 percentage points. This result is robust to addition of other explanatory variables and to the use of alternative estimation methods. The study also finds that the rate of dissension by Regional Bank Presidents does not depend upon either the national unemployment rate or national inflation rate. This suggests that Regional Bank Presidents react to these variables in the same manner as the rest of the FOMC.

Keywords: FOMC, Monetary Policy, Probit, Unemployment, Voting

JEL Classification: E5, C35, E24

Suggested Citation

Pieper, Paul J. and Hwang, Sang-In, The Effect of Regional Economic Conditions on U.S. Monetary Policy (February 21, 2018). Journal of International Trade & Commerce, Vol.14, No.1, pp.93-102. Available at SSRN: https://ssrn.com/abstract=3177674

Paul J. Pieper (Contact Author)

University of Illinois at Chicago - Department of Economics

725 University Hall (UH)
Chicago, IL 60607-7121
United States

Sang-In Hwang

Gangneung-Wonju National University - Department of Internaional Commerce and Area Studies ( email )

123 Jibyeon-dong
Gangneung, Gangwon-do
Korea, Republic of (South Korea)

Register to save articles to
your library

Register

Paper statistics

Downloads
9
Abstract Views
62
PlumX Metrics