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

See all articles by Bruno Albuquerque

Bruno Albuquerque

Bank of England; International Monetary Fund (IMF)

Date Written: April 16, 2019

Abstract

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

Albuquerque, Bruno and Albuquerque, Bruno, One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States (April 16, 2019). Journal of Money, Credit and Banking 51(5), 1309-1353, 2019., Available at SSRN: https://ssrn.com/abstract=3827951

Bruno Albuquerque (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/brunoalbuquerque19/

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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