One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States
Journal of Money, Credit and Banking 51(5), 1309-1353, 2019.
42 Pages Posted: 24 Apr 2021
Date Written: April 16, 2019
I investigate the nonlinear effects of monetary policy through differences in household debt across U.S. states. After constructing a novel indicator of inflation for the states, I compute state-specific monetary policy stances as deviations from an aggregate Taylor rule. I find that the effectiveness of monetary policy is curtailed during periods of large household debt imbalances. Moreover, a common U.S. monetary policy does not fit all; it may have asymmetric effects on the economic performance across states, particularly at times of high dispersion in the household debt imbalances, as it may have been the case around the Great Recession.
Keywords: monetary policy, household debt, regional asymmetries, local projections, Taylor rule
JEL Classification: C33, E32, E52, G21
Suggested Citation: Suggested Citation