Monetary Policy: The Regional Dimension

Monetary policy is used to bring the growth of nominal demand in line with the growth in supply so that price stability is reached. However, given diverse production structures and imperfect factor mobility across regions, a single monetary policy cannot be optimal for all.

As monetary policy is determined centrally with the aim of aggregate price stability, factor misallocation arising from regional heterogeneity is often overlooked. This misallocation hinders productivity growth and economic performance, as well as creating winners and losers at the regional level.

This project aims to quantitatively investigate the impact of monetary policy shocks on regional economic outcomes across the ITL1 regions and evaluate the extent to which regional factor misallocation impacts aggregate productivity growth.