1. Florida’s Sensitivity to Monetary Policy Changes Marisela Guillen

2. Literature Gerald Carlino and Robert DeFina: The Differential Regional Effects of Monetary Policy. 1998 MIT Press Journals 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 Federal Board Reserve comments remarks about Florida’s economic growth from Vice Chairman Roger W. Ferguson from May 12, 2000

3. Monetary Policy Changes Affect the nation’s economy in different ways: 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: Some regions and states are more sensitive than others. Economic Theory and research indicate three main reasons:  Regional differences in the mix of interest- sensitive 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.

4. Term Paper Objective To evaluate how sensitive the state of Florida is to changes in monetary policy by analyzing Gross State Product sensibility.

5. 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

6. 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.

7. Mix of Interest- Sensitive Industries

8. Illustration: Florida’s Real Estate Income vs. Target Fed Fund Rate

9. Large vs. Small Firms % Small Firms defined as firms 0-100employees USFlorida year# firms% % 19975,446,13298.27%337,06997.29% 19985,482,72498.27%339,04097.28% 19995,509,65698.25%340,54997.25% 20005,551,00698.20%344,20897.24% 20015,555,10398.19%348,53597.24% 20025,598,58098.26%360,92897.34% 20035,665,37298.24%371,53097.35%

10. % Florida's loans per bank size

11. 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:

12. 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 interest- sensitive industries: construction, real estate, manufacturing, and wholesale and retail trading.

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