Finally, we study aggregate implications. As the national Keynesian cross shows, the aggregate effects of regional heterogeneity depend on the sorting between MPCs & non-tradable share ➡️ different geographies lead to different amplification. See 👇: US vs Italy

10/11

The model is also able to successfully replicate the empirics. We run our empirical regressions on model-generated data and show that the results are consistent with the patterns observed in the data.

9/11

We compute IRFs for the 3,140 calibrated counties. Our model generates large cross-county dispersion in the employment response to monetary policy shocks.

8/11

We discipline our theory with our data and calibrate the model to the universe of 3,140 US counties.

We select three real-life counties and conduct a model-based narrative analysis of the regional transmission mechanism of MP.

7/11

In the data, we find that:

1. Counties that have a higher share of non-tradable employment or a higher MPC are more responsive to MP shocks.

2. MPCs and non-tradable employment interact positively in shaping this response.

6/11

To validate our model empirically, we construct novel measures of county-level MPCs in the US and Italy.

We make the data publicly available here: regionalkeynesiancross.com

5/11

We move beyond county-level analysis. The regional Keynesian cross is non-linear in MPCs & trade openness ➡️ distributions matter for aggregates.

Result 2⃣: the national Keynesian cross, an analytical characterization of the national consumption response in terms of regional heterogeneity.

4/11

We build a multi-region HANK model with cross-county heterogeneity in (i) MPCs & (ii) trade openness.
Result 1️⃣: the Regional Keynesian Cross. It characterizes a county's response to MP as a function of MPCs & non tradable income share.

At its heart: a regional Keynesian multiplier.

3/11

Motivation: US monetary policy has widely different effects across counties. We ask two questions:

1. What can explain this?
2. Does it matter for the national transmission of monetary policy?

2/11

🚨 Paper update 🚨

𝗧𝗵𝗲 𝗥𝗲𝗴𝗶𝗼𝗻𝗮𝗹 𝗞𝗲𝘆𝗻𝗲𝘀𝗶𝗮𝗻 𝗖𝗿𝗼𝘀𝘀 - with
@adriencouturier.bsky.social & @rustamjamilov.bsky.social

Does regional heterogeneity matter for monetary policy? We provide a theoretical, empirical & quantitative investigation.

Link: dropbox.com/scl/fi/injql...

Thread🧵

1/11

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