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Foreign capital inflows to the USA and mortgage interest rates

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  • Ayanou, Tilahun

Abstract

This study explores the impacts of foreign capital inflows on the USA mortgage interest rates. I find evidence that foreign capital flows are significantly and negatively related to 30-year mortgage interest rates. The evidence on the extent of the responsiveness of the interest rates to the foreign capital inflows depends on the type and magnitude of the capital inflows. Official capital flows to the Treasury and agency bonds do appear to have a significant influence on the mortgage interest rates in the VAR model specifications. Private capital inflows to the US agency bonds have significant impact on the long term mortgage rates. Private capital inflows to agency bonds do not significantly and consistently affect mortgage interest rates and Treasury yields. The relatively weaker importance of the private inflows in influencing the rates may be due to its smaller size compared with the official inflows. The results are robust for alternative model specifications.

Suggested Citation

  • Ayanou, Tilahun, 2016. "Foreign capital inflows to the USA and mortgage interest rates," Journal of Housing Economics, Elsevier, vol. 34(C), pages 1-14.
    • Handle: RePEc:eee:jhouse:v:34:y:2016:i:c:p:1-14
    DOI: 10.1016/j.jhe.2016.06.001
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    References listed on IDEAS

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    1. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, June.
    2. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    3. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
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    Cited by:

    1. Kai-Hua Wang & Chi-Wei Su & Ran Tao, 2019. "Does the Mundell-Fleming model fit in China?," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 11-28.

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    More about this item

    Keywords

    Capital inflows; Mortgage interest rates; VAR; Impulse responses; Treasury yield;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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