Monetary policy shocks drive significant swings in credit market sentiments.
The study looked at how the Federal Reserve's actions affected interest rates from 2008 to 2015. They found that unconventional policies aimed to lower long-term interest rates. By analyzing market reactions to Fed announcements, they discovered that changes in long-term interest rate volatility had a bigger impact on the economy than changes in short-term rates. This suggests that financial markets play a crucial role in how monetary policy affects the economy.