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Federal Reserve shocks: which securities really flow?

Author

Listed:
  • Julia Schmidt
  • Maéva Silvestrini
  • Urszula Szczerbowicz

Abstract

This paper challenges the conventional wisdom that US monetary policy tightening attracts foreign capital through purchases of US Treasuries. Using bilateral data on US foreign assets and liabilities, we show that much of the observed capital inflows into the US is actually due to US investors repatriating funds from foreign equities. This highlights important heterogeneity between domestic and foreign investors. Extending the analysis to Central Bank Information shocks—monetary surprises conveying additional economic information—we document a distinct global portfolio rebalancing characterized by risk-on behavior, with US investors increasing foreign equity holdings and foreign investors shifting into US equities.

Suggested Citation

  • Julia Schmidt & Maéva Silvestrini & Urszula Szczerbowicz, 2026. "Federal Reserve shocks: which securities really flow?," Working papers 1040, Banque de France.
    • Handle: RePEc:bfr:banfra:1040
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    File URL: https://www.banque-france.fr/system/files/2026-04/WP1040_0.pdf
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    Keywords

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    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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