Monetary Policy and Racial Unemployment Rates

Madeline Zavodny and Tao Zha
Economic Review, Vol. 85, No. 4, 2000

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When the Federal Open Market Committee began raising interest rates in June 1999 to forestall inflationary pressures, concern mounted that monetary policy moves might slow the pace of economic growth, undoing the employment gains minorities and other disadvantaged groups made during the 1990s. Implicit in such concern is the idea that these groups will be disproportionately affected by an economic slowdown.

To explore this issue, this article analyzes the effect of exogenous movements in monetary policy and other macroeconomic variables on the overall and black unemployment rates. These exogenous movements are shifts in the federal funds rate not explained by movements in the other variables included in the econometric model estimated here. The analysis focuses on how the implementation of exogenous monetary policy during the 1980s and 1990s affected the black unemployment rate relative to the overall unemployment rate. Results suggest that the black unemployment rate tends to be slightly more responsive to exogenous monetary policy moves than the overall unemployment rate is. However, exogenous monetary policy moves during the 1980s and 1990s did not have significantly more adverse effects on African Americans than on the total population and may even have had positive net effects on African Americans.

December 2000