On the differential impact of monetary policy across states/territories and its determinants in Australia: Evidence and new methodology from a small open economy

Monetary shocks largely affect economic activity in Western Australia. In smaller proportion, those shocks generate contractions in New South Wales, Victoria and South Australia, while economic activity in Queensland is significantly less affected. Finally, we develop a new approach to uncover the determinants of the differential state/territory responses to monetary shocks. Our estimation validates the theoretical assumptions that differences in industrial composition, exposure to international trade and household debt across states/territories are important determinants of these differences.