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High Frequency Identification of Monetary Non-Neutrality


  • Jon Steinsson

    (Columbia University)

  • Emi Nakamura

    (Columbia University)


We provide new evidence on the responsiveness of real interest rates and inflation to monetary shocks. Our identifying assumption is that the increase in the volatility of interest rate news in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about monetary policy. Nominal and real interest rates respond roughly one-for-one several years out into the term structure at these times, implying that changes in expected inflation are small. At longer horizons, the response of expected inflation grows. Accounting for ``background noise'' in interest rates on FOMC days is crucial in identifying the effects of monetary policy on interest rates, particularly at longer horizons. We show that in conventional business cycle models with nominal rigidities our estimates imply that monetary non-neutrality is large. We also find evidence that FOMC announcements provide the public with information not only about monetary policy but also about the evolution of exogenous economic fundamentals.

Suggested Citation

  • Jon Steinsson & Emi Nakamura, 2014. "High Frequency Identification of Monetary Non-Neutrality," 2014 Meeting Papers 96, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:96

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    1. Relying on the Fed's Balance Sheet
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-02-26 12:56:17

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