A question how should federal government policy be optimally conducted when the economy is composed of multitude of states with their own industrial structure is not a trivial one. Each economy in a multi-state region is characterized by its own dynamics that, in principle, may be quite different from that of the union in aggregate. While being quite relevant for the conduct of federal government policy, i.e., monetary authority, in the United States, the question of optimal monetary policy in a multistate economy was disregarded by the modern monetary literature. The objective of this study is three folds. First, we show that United States is composed in different economic or multi-state regions. Second, theoretically we show that a uniform policy by the federal government may not work optimally for each state in multi-state region. Third, we show that the U.S. is a multi-state region not only in terms for economic cycles but also in terms of real estate cycles.

This dissertation consists of three essays. Depending on the state level business cycles similarity and differences, the first essay, "The U.S. Regional Business Cycles Analysis", divides U.S. into four cyclical regions. The essay shows that some of the U.S. states have similar business cycles as the nation, while some states have the opposite cycle patters. Most U.S. states fall somewhere in between. Economically diminant states have the similar business cycle patterns as the nation. States with specialized industries often lead the national business cycle patterns. We also observe that states around the economically dominant states follow or get influenced by the economically dominant states’s business cycles. Thus, economically not dominant states' geographic proximity from the economically dominant states play quite a significant role in the formation of the business cycle patterns of the formar group of states. The business cycle patterns of the major oil supply states are distinctly different from the national business cycle patterns.

The second essay of this dissertation, "Optimal Monetary Policy in a Multi-State Economy", is a theoretical piece. The results of this essay suggest that when the goal of the monetary authority is to minimize the variance of some aggregate measure such as real GDP without explicitly taking the output variance in each region or correlation structure between states into account, it may achieve its goal but may increases the output variation in regional economies. On the contrary, when the output variance in each region or correlation structure between states is explicitly included in the objective function, the model not only successfully reduces the output variances in the states but also reduces the national output variation.

The third essay, "Are U.S. States Economic and Real Estate Cycles Related", found that there are no distinct and persistent patterns between real estate cycles and state level economic fluctuations. We observe that real estate downturns are more persistent and severe than economic recessions. Comparison of the national and state level business and real estate cycle patterns suggest that only two out of four recent NBER dated national recessions were accompanied by predominance of real estate downturns in most of the U.S. states. Our results also suggest that nearly forty U.S. states as well as the U.S. on aggregate exhibited distinct downturn of the real estate cycle between the third quarter of 2006 and the first quarter of 2007. Finally we found that the state level economic and real estate growth rate diverges during the period of recession.