High-Frequency Identification of Monetary Non-Neutrality: The Information Effect*

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ID: 298229
2018
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Abstract
We present estimates of monetary non-neutrality based on evidence from high-frequency responses of real interest rates, expected inflation, and expected output growth. Our identifying assumption is that unexpected changes in interest rates in a 30-minute window surrounding scheduled Federal Reserve announcements arise from news about monetary policy. In response to an interest rate hike, nominal and real interest rates increase roughly one-for-one, several years out into the term structure, while the response of expected inflation is small. At the same time, forecasts about output growth also increase—the opposite of what standard models imply about a monetary tightening. To explain these facts, we build a model in which Fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals. Our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output.
Reference Key
openalex_W2890353604 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Emi Nakamura, Jón Steinsson
Journal the quarterly journal of economics
Year 2018
DOI
10.1093/qje/qjy004
URL
https://doi.org/10.1093/qje/qjy004
Keywords Keywords not found

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