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Publications
  • March 2015
  • Article
  • Journal of Financial Economics

Monetary Policy and Long-Term Real Rates

By: Samuel G. Hanson and Jeremy C. Stein
  • Format:Print
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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.

Keywords

Policy; Interest Rates; Economics

Citation

Hanson, Samuel G., and Jeremy C. Stein. "Monetary Policy and Long-Term Real Rates." Journal of Financial Economics 115, no. 3 (March 2015): 429–448.
  • Find it at Harvard

About The Author

Samuel G. Hanson

Finance
→More Publications

More from the Authors

    • 2022
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    Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads

    By: Samuel G. Hanson, Aytek Malkhozov and Gyuri Venter
    • April 2022
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    Predictable Financial Crises

    By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
    • January 2022 (Revised January 2022)
    • Faculty Research

    The Impact Developers Fund

    By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
More from the Authors
  • Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads By: Samuel G. Hanson, Aytek Malkhozov and Gyuri Venter
  • Predictable Financial Crises By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
  • The Impact Developers Fund By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
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