International Capital Flows and U.S. Interest Rates

Francis Warnock and Veronica Warnock

No 12560, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Foreign official purchases of U.S. government bonds have an economically large and statistically significant impact on long-term interest rates. Federal Reserve credibility, as evidenced by dramatic reductions in both long-term inflation expectations and the volatility of long rates, contributed much to the decline of long rates in the 1990s. More recently, however, foreign flows have become important. Controlling for various factors given by a standard macroeconomic model, we estimate that had there been no foreign official flows into U.S. government bonds over the past year, the 10-year Treasury yield would currently be 90 basis points higher. Our results are robust to a number of alternative specifications.

JEL-codes: E43 E44 F21 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Note: IFM ME
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Citations: View citations in EconPapers (88)

Published as Warnock, Francis E., and Veronica Cacdac Warnock, 2009, International Capital Flows and U.S. Interest Rates, Journal of International Money and Finance 28: 903-919.

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Related works:
Working Paper: International capital flows and U.S. interest rates (2005)
Working Paper: International Capital Flows and U.S. Interest Rates (2005)
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