| Abstract: | This study explores the state-dependent effects of monetary policy shocks on the
Canadian economy at two levels: national and provincial. The study employs the
monetary policy shocks identified by Champagne and Sekkel (2018) by narrative
approach. The impulse response framework used in the study is local projections
(LPs), a widely applied linear regression-based alternative to the standard vector
autogression (VAR) framework. The state-dependecy is modelled by both a dummy
variable approach and a smooth transition approach. Two economic states are considered: expansion and recession. One major finding is noticeable differences exist across some Canadian provinces as well as between economic states in terms of unemployment response to monetary policy. Sensitivity analyses solidify the result.
Key words: impulse response, local projections, state-dependent, monetary policy
shocks, unemployment rate, territorial, provincial, long horizon |