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Official Demand for U.S. Debt; Implications for U.S. Real Interest Rates

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  • Iryna Kaminska
  • Gabriele Zinna

Abstract

By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium.

Suggested Citation

  • Iryna Kaminska & Gabriele Zinna, 2014. "Official Demand for U.S. Debt; Implications for U.S. Real Interest Rates," IMF Working Papers 14/66, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/66
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    References listed on IDEAS

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    1. Stefania D’Amico & William English & David López‐Salido & Edward Nelson, 2012. "The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects," Economic Journal, Royal Economic Society, vol. 122(564), pages 415-446, November.
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    5. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
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    Cited by:

    1. Cohen, Benjamin J., 2015. "The Demise of the Dollar?," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.
    2. repec:wsi:qjfxxx:v:04:y:2014:i:01:n:s2010139214500013 is not listed on IDEAS
    3. Blattner, Tobias & Joyce, Michael A. S., 2016. "Net debt supply shocks in the euro area and the implications for QE," Working Paper Series 1957, European Central Bank.
    4. Steiner, Andreas, 2017. "Determinants of the Public Budget Balance: The Role of Official Capital Flows," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168184, Verein für Socialpolitik / German Economic Association.
    5. John Nana Francois, 2016. "Foreign Official Holdings of U.S Treasuries, Stock Effect and the Economy: A DSGE Approach," 2016 Papers pfr351, Job Market Papers.
    6. Christensen, Jens H. E. & Rudebusch, Glenn D., 2017. "A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt," Working Paper Series 2017-7, Federal Reserve Bank of San Francisco.
    7. Giuseppe Grande & Sergio Masciantonio & Andrea Tiseno, 2014. "The interest-rate sensitivity of the demand for sovereign debt. Evidence from OECD countries (1995-2011)," Temi di discussione (Economic working papers) 988, Bank of Italy, Economic Research and International Relations Area.

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