Monetary policy changes have surprising impact on long-term real rates.
Changes in monetary policy can significantly impact long-term real interest rates in the future. A 100 basis-point increase in short-term interest rates leads to a 42 basis-point increase in long-term rates. This goes against traditional economic models, suggesting that monetary policy can influence real rates beyond what was previously thought. The effect on long-term rates seems to be driven by changes in term premia, possibly due to demand from certain types of investors.