Variations Across Canadian Regions in the Sensitivity to U.S. Monetary Policy

Todd Potts () and David Yerger

Atlantic Economic Journal, 2010, vol. 38, issue 4, 443-454

Abstract: This paper contributes to the research on regional economic responses to monetary policy shocks in two ways. First, rather than just model the Canadian economy at the national level, we examine the impact of monetary policy shocks across five separate Canadian regions. The second extension of the literature is our focus upon estimating the impact from both Canadian and U.S. monetary policy shocks upon regional Canadian economic activity. The findings are broadly consistent with results from previous research modeling the national Canadian economy, but noteworthy regional differences are observed. Eastern Canadian regions, defined as Ontario (ON), Quebec (QU), and Atlantic (AT), exhibit greater sensitivity to Canadian monetary policy shocks than do Western Canadian regions. We also find that U.S. monetary policy shocks have a discernable impact on Canadian regional economic activity, but the impact varies across regions. For the three Eastern Canadian regions ON, QU, and AT, there is a significant impact upon regional economic activity from a U.S. monetary policy shock, but not for the two Western Canadian regions Prairie (PR) and West (WE). Moreover, the impact on ON, QU, and AT from a fed funds shock is quite similar to the impact from a shock to the Canadian Bank Rate. Copyright International Atlantic Economic Society 2010

Keywords: Vector autoregression; Impulse response function; Monetary policy; Canadian regional employment; C32; E52; F42; R1 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/s11293-010-9248-9

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