Regional Shadow Policy Under a Common Federal Funds Rate

Abstract

The Federal Reserve sets one national monetary-policy stance, but the labor-market benchmark behind that stance need not fit all regions equally well. This paper measures the regional common-policy-fit problem inside the United States by mapping state unemployment-gap estimates into county-weighted Federal Reserve district benchmarks. The central object is a district shadow-policy gap: the basis-point rule-input difference between a district labor-market gap and the national unemployment-gap benchmark. The current evidence shows that district gaps widen sharply during crisis and zero-lower-bound periods and that material residual mismatch remains even after the common district input is chosen to fit the district distribution. The exercise is a measurement diagnostic, not a welfare ranking or an optimal-policy rule.

Citation

Pusateri, Nicholas R. 2026. “Regional Shadow Policy Under a Common Federal Funds Rate.” Work in Progress. URL: https://nicpusateri.com/regional-shadow.

@article{pusateri2026regional,
  title={Regional Shadow Policy Under a Common Federal Funds Rate},
  author={Pusateri, Nicholas R.},
  journal={Work in Progress},
  year={2026},
  url={https://nicpusateri.com/regional-shadow},
  }