Working Paper

International capital flows and U.S. interest rates

Abstract: Foreign flows have an economically large and statistically significant impact on long-term interest rates. Controlling for various macroeconomic factors we estimate that had there been no foreign flows into U.S. bonds over the past year, the 10-year Treasury yield would currently be 150 basis points higher; even a step-down to average inflows would imply an increase of 105 basis points. The impact of the headline-making foreign official flows?a relatively small subset of total foreign accumulation of U.S. bonds?is also significant but markedly smaller. Our results are robust to a number of alternative specifications.

Keywords: Capital movements; Interest rates;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2005

Number: 840