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International Capital Flows and U.S. Interest Rates

  • Francis E. Warnock
  • Veronica C. Warnock

Abstract: Foreign flows have an economically large and statistically significant impact on longterm 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.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp103.

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Date of creation: 15 Dec 2005
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Handle: RePEc:iis:dispap:iiisdp103
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