Regional asymmetries in monetary policy transmission: The case of the Greek regions

Abstract

Monetary policy is unlikely to have a uniform impact on the real economic activity across regions with different industrial structures. This study measures the heterogeneous effects of monetary policy on regional and sectoral output of the 13 regions in Greece over the period 1980 to 2009. By using an unrestricted vector autoregressive model and the impulse response analysis, our results show that an interest rate shock affects the economic activity across regions differently. Furthermore in our investigation, we use a panel vector autoregressive model so as to investigate the dynamic variation of the impact of interest rates controlling also for time and cross regions fixed effects associated with specific time invariant regions' characteristics as well as with time variant characteristics attributed to the integration process of these regions. Finally, in identifying the channel of monetary policy transmission in the Greek regions, we investigate the role of Greek regional industrial structures in explaining these variations.