Fed paper finds ‘surprising’ impact of monetary policy on long-term real rates

federal reserve

A working paper, published by the Federal Reserve in July, attempts to explain the "surprisingly strong" effects of short-term interest rate changes on 10-year forward real rates.

Authors Samuel Hanson and Jeremy Stein find that a 100-basis point increase in the two-year nominal yield on the day of a Federal Open Market Committee announcement causes a 42bp increase in 10-year forward real rates.

This, the authors argue, contradicts New Keynesian theory, which says monetary policy should have no

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