Transcript Florida`s Sensitivity to Monetary Policy Changes

Florida’s Sensitivity to
Monetary Policy Changes
Marisela Guillen
Literature
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•
Gerald Carlino and Robert DeFina: The Differential
Regional Effects of Monetary Policy. 1998 MIT Press
Journals
Federal Board Reserve comments remarks about
Florida’s economic growth from Vice Chairman
Roger W. Ferguson from May 12, 2000
Monetary Policy Changes
•
•
Affect the nation’s economy in different ways:
↑↓Spending, ∆ Hiring Decisions, Unemployment,
GDP, etc.
Some regions and states are more sensitive than
others. Economic Theory and research indicate
three main reasons:
 Regional differences in the mix of interestsensitive industries,
 Regional differences in the mix of large vs. small
firms,
 Regional differences in the abilities of banks to
alter their balance sheets by firm size.
Term Paper Objective
To evaluate how sensitive the state of Florida is
to changes in monetary policy by analyzing
Gross State Product sensibility.
Plan for Florida’s Evaluation
To analyze the relationship between Florida’s income and
Florida’s industries that contribute to gross state
product (GSP) to determine:

Mix of interest-sensitive industries

Mix of large vs. small firms

Florida’s bank loans by bank size

Regression: annual %∆ GSP vs. annual %∆ of
the income from each industry that contributes to
the GSP: Significant variables
Gross State Product
GSP: It is a measurement of the economic output of a state. It is the
sum of all value added by industries within the state and serves
as a counterpart to the gross domestic product or GDP.
 Agriculture, forestry, fishing, &
hunting
 Mining
 Utilities
 Construction
 Manufacturing
 Wholesale trade
 Retail trade
 Transportation and warehousing,
excluding Postal Service
 Information
 Finance and insurance
 Real estate, rental, and leasing
 Professional and technical
services
 Management of companies &
enterprises
 Administrative and waste services
 Educational services
 Health care and social assistance
 Arts, entertainment,& recreation
 Accommodation and food
services
 Other services, except
government
 Government
Mix of Interest- Sensitive Industries
2004 Florida's GSP
Government
12%
Health care &
social assist
7%
Others
16%
Adm & waste
services
5%
Construction
7%
Manufacturing
5%
Profes &
technical serv
6%
Real estate
16%
Finance &
insurance
7%
Wholesale trade
7%
Retail trade
8%
Information
4%
Illustration: Florida’s Real Estate Income vs.
Target Fed Fund Rate
Large vs. Small Firms
% Small Firms defined as firms 0-100employees
US
Florida
year
# firms
%
# firms
%
1997
5,446,132
98.27%
337,069
97.29%
1998
5,482,724
98.27%
339,040
97.28%
1999
5,509,656
98.25%
340,549
97.25%
2000
5,551,006
98.20%
344,208
97.24%
2001
5,555,103
98.19%
348,535
97.24%
2002
5,598,580
98.26%
360,928
97.34%
2003
5,665,372
98.24%
371,530
97.35%
% Florida's loans per bank size
90.00%
%loans per bank size
80.00%
70.00%
60.00%
Assets < $100M"
Assets >$100M<$1B
Assets > $1B
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1994
1996
1998
2000
year
2002
2004
Regression
(data from 1963 to 2003):

% ∆ GSP = 0.00657 + 0.0283 % ∆ Agriculture, forestry, fishing + 0.00349% ∆Mining + 0.0118 % ∆ Utilities +
0.0762 % ∆ Construction + 0.102 % ∆ Manufacturing + 0.0689 % ∆ Wholesale trade + 0.0700 % ∆ Retail trade+
0.0398 % ∆ Transportation and warehousing + 0.0547 % ∆Information + 0.0617 % ∆ Finance and insurance +
0.103 % ∆ Real estate, rental, and leasing + 0.0666 % ∆ Professional and technical services + 0.0343 % ∆
Management of companies & enterprises + 0.0048 % ∆ Administrative and waste ser + 0.0033 % ∆ Educational
service + 0.0555 % ∆ Health care and social assistance + 0.0242 % ∆Arts, entertainment, and recreation 0.0093 % ∆ Accommodation and food services + 0.0227 % ∆ Other services, except government + 0.101 % ∆
Government

F-test p-value 0.000 < 0.05 (5% level) at least one of the IV affects % ∆
GSP

R²-adj is 99.6% : 99.6% of variation of Florida’s GSP explained by IV
variation


t-statistics IVs: mining, utilities, management of companies, administrative
and waste services, educational services, and accommodation and food
services are not significant variables at the 5% level that affect Florida’s
GSP.
No Heteroskedasticity:
Conclusion
Florida’s economy has characteristics that indicate it is sensitive to
monetary policy changes:

Industries such as real estate, manufacturing, construction, and
wholesale and retail trading account for more than 40% of Florida
GSP in 2004.

Mix of large vs. small firms: Florida has around 97% of small firms.

Proportion of loans from medium size banks has been steadily
increasing since 1997 to reach almost 60% in 2003.

Regression equation: Among the significant variables interestsensitive industries: construction, real estate, manufacturing, and
wholesale and retail trading.
Thank you 