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Monetary policy and long-term real rates

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Hanson, Samuel G., Stein, Jeremy C.·2015·Journal of Financial Economics
DOI 10.1016/j.jfineco.2014.11.001
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Abstract

Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real rate. This finding is at odds with standard macro-models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Instead, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that could generate such variation in term premia is based on demand effects due to the existence of what we call yield-oriented investors. We find some evidence supportive of this channel.

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Metadata

Authors
Hanson, S. G., & Stein, J. C.
Venue
Journal of Financial Economics
Publisher
Elsevier BV
Published
2015-03
Volume
115
Issue
3
Pages
429-448
ISSN
0304-405X (ISSN-L)
DOI
10.1016/j.jfineco.2014.11.001
OpenAlex
W2129846541
Cited by
631
References
1
FWCI
44.93
Type
journal article
Language
en
Open access
green
Licence
www.elsevier.com/tdm/userlicense/1.0/ (tdm)

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Hanson, S. G., & Stein, J. C. (2015). Monetary policy and long-term real rates. Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2014.11.001

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