High Frequency Identification of Monetary Non-Neutrality

We provide new evidence on the response of real interest rates and inflation to monetary shocks. Our measure of monetary policy shocks is based on unexpected changes in interest rates over a 30-minute window surrounding scheduled Federal Reserve announcements. Our estimates indicate that nominal and real interest rates respond roughly one-for-one at these times, several years out into the term structure, while the response of inflation is small and delayed. We use this evidence to estimate key parameters in a workhorse New Keynesian model. We find that 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.