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The dynamic effects of U.S. monetary policy on state unemployment

Korobilis, Dimitris and Gilmartin, Michelle (2010): The dynamic effects of U.S. monetary policy on state unemployment.

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Abstract

This paper studies the transmission of monetary shocks to state unemployment rates, within a novel structural factor-augmented VAR framework with a time-varying propagation mechanism. We find evidence of large heterogeneity over time in the responses of state unemployment rates to monetary policy shocks, which do not necessarily comply with the response of the national unemployment rate. We also find evidence of heterogeneity over the spatial dimension, although geographical proximity seems to play an important role in the transmission of monetary shocks.

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