A previous version of this working paper was originally published in September 1997.

Impulse response functions from estimated structural vector autoregression models reveal differences in state policy responses, which in some cases are substantial. The paper also provides evidence on the reasons for the measured cross-state differential policy responses. The size of a state's response is significantly related to its industry mix, evidence of an interest rate channel for monetary policy. The state-level data offer no support for recently advanced credit-channel theories of the monetary policy transmission mechanism.