The Effect of Monetary and Fiscal Policies on Regional Business Cycles

A Keynesian reduced-form quarterly model of regional income determination is constructed and tested for the eight regions of the United States. The results support the view that national economic policy exerts a significant direct influence on a region's export earnings. The findings are in conflict with some monetarist models, in that fiscal policy, as well as monetary policy, strongly influences regional basic economic activity. Also, the findings suggest the desirability of incorporating national policy variables into regional econometric models.