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High Frequency Identification of Monetary Non-Neutrality

  • Emi Nakamura
  • Jón Steinsson

We present estimates of monetary non-neutrality based on evidence from high-frequency responses of nominal and real interest rates. Our identifying assumption is that unexpected changes in interest rates in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about monetary policy. At these times, nominal and real interest rates respond roughly one-for-one, several years out into the term structure, while the response of expected inflation is small. We use this evidence to estimate key parameters of a workhorse New Keynesian model. The implied degree of monetary non-neutrality is large. Moreover, we find evidence of a "Fed information effect": FOMC announcements affect expectations not only about the evolution of monetary policy but also about future economic fundamentals.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19260.

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Date of creation: Jul 2013
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Handle: RePEc:nbr:nberwo:19260
Note: EFG ME
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  2. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-88, March.
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