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Monetary policy and the secular decline in long-term interest rates: A global perspective

Author

Listed:
  • Boris Hofmann
  • Zehao Li
  • Steve Pak Yeung Wu

Abstract

We demonstrate that almost 70% of the secular decline in long-term interest rates across advanced economies between the early 1990s and 2023 occurred in the three days surrounding U.S. monetary policy announcements (FOMC windows). By contrast, other central banks' announcements had only limited effects, if any, on the long-run direction of long-term interest rates, both domestically and across countries. The persistent global effect of the FOMC window reflects the combination of the concentration of declines in U.S. bond yields in this window and large interest rate spillovers from the U.S. to other countries. We further find that the decline in interest rates during FOMC windows is closely associated with pure monetary policy shocks and not with information effects. Moreover, the rate decline on FOMC announcement days is primarily driven by changes in real and expected short rates rather than inflation expectations and term premia. These findings highlight the pivotal role of U.S. monetary policy news in shaping global long-term interest rate dynamics.

Suggested Citation

  • Boris Hofmann & Zehao Li & Steve Pak Yeung Wu, 2025. "Monetary policy and the secular decline in long-term interest rates: A global perspective," BIS Working Papers 1252, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:1252
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    References listed on IDEAS

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    Cited by:

    1. Paul Beaudry & Paolo Cavallino & Tim Willems, 2024. "Monetary Policy Along the Yield Curve: Why Can Central Banks Affect Long-Term Real Rates?," NBER Working Papers 32511, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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