An interesting new paper argues that the effectiveness of monetary policy depends on the regional distribution of housing equity. The authors find, among other things, that reductions in interest rates in wake of the Great Recession were least likely to have an impact in areas of the country with the largest house price declines because, as Brookings recites, “households in those regions were unlikely to have enough housing equity to refinance their mortgages [….] The authors conclude that monetary policy makers should track the regional distribution of housing equity over time in order to gauge the likely effectiveness of a given change in policy.”

Ultimately, the analysis underscores the increasingly clear point that the United States is not one, but multiple economies. How to administer policy in such diverse economic terrain will be a matter of potentially increasing frustration.

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