Is a National Monetary Policy Optimal?

Monetary policy has differential effects throughout the United States. When setting monetary policy, central banks must consider how national and regional economic goals are being achieved. In this study, the methods and evidence are focused on using structural VAR analysis, assuming that the United States has an interest rate channel of monetary policy. The methods estimate the symmetry and magnitude of monetary shocks on income, unemployment and prices in major metropolitan statistical areas (MSAs) of the United States as compared to the national effects. As in Carlino and Defina (1998) and Florio (2005), differential regional effects connect to optima currency areas (OCA) literature, the advent of the Euro, increased regionalism, and the possibility of more monetary unions forming worldwide. Events in early 2010 concerning the Euro's stability show the importance of monitoring regions and their reactions to policy.