Monetary policy impacts economy and bond risk premia in groundbreaking study.
The paper explores how changes in interest rates are influenced by factors like monetary policy and economic conditions. By analyzing these relationships, the researchers identified how monetary policy impacts both risk premiums and the overall economy. They found that fluctuations in long-term interest rates can be attributed to shifts in expected future short-term rates as well as changes in risk premiums. This study sheds light on the complex interactions between monetary policy, risk premiums, and economic outcomes.