International Capital Flows and U.S. Interest Rates

By F. Warnock, Veronica Cacdac Warnock. 2005

355 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/62ebc9103f7cf6332bcc35ca12faea86ca31e1c2

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Citations in the corpus

Large-scale asset purchases by the Federal Reserve: did they work? (2010, neutral): “Warnock and Warnock (2009) also find that purchases of U.S. debt by foreign governments tend to lower U.S. long-term interest rates. the ten-year swap rate, and the Baa corporate bond index yield.30 Swap rates and corporate bond yields help us gauge the extent to which news about LSAPs affected…”
The large scale asset purchases had large international effects (2010, neutral): “10 Warnock and Warnock (2009) find international capital flows substantially affect long-term U.”
Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital (2013, neutral): “Gelos and Wei (2005) show that international portfolio investment is negatively associated with the political risk ratings provided by the International Country Risk Guide (ICRG), which comprises 12 components including corruption and government stability.”
Government Bonds and Their Investors: What are the Facts and Do They Matter? (2012, neutral): “Treasury bonds, Warnock and Warnock (2006) and Beltran et al. (2012) find coefficients that would correspond to a reduction of 150 and 50 to 140 basis points, respectively.”
International Capital Flows and House Prices: Theory and Evidence (2012, neutral): “Treasuries in the 2000 - 2004 period , while Warnock and Warnock ( 2009 ) estimate that 12 - month ‡ows equal to one percent of GDP are associated with a 19 basis point reduction in long rates .”
Foreign Participation in Local-Currency Bond Markets (2004, background): “bonds, as estimated in Warnock and Warnock (2005), from the size of the U.”
The Economic Crisis is a Crisis for Economic Theory (2010, background): “Yet another factor has been the high propensity to save in China (see Warnock and Warnock (2006)).Another argument often heard is that banks became heavily overleveraged and they and their clients were very vulnerable to a downturn in underlying asset prices (see Shin (2009))(2).”
Overborrowing, Financial Crises and ‘Macro-Prudential’ Policy? (2011, neutral): “Warnock and Warnock (2009) provide econometric evidence of the significant downward pressure exerted by foreign capital inflows on U.S. T-bill rates since the mid 1980s.”
What Segments Equity Markets (2011, neutral): “cial development (see Wurgler (2000) and Fisman and Love (2004)).”
Fiscal positions and government bond yields in OECD countries (2010, neutral): “This selection of control variables is broadly similar to that employed by Warnock and Warnock (2006), albeit without the data on foreign capital inflows that represent the focus of their analysis.”
The External Wealth of Nations Mark Ii: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004 (2006, neutral): “8 See Chinn, Rogers, and Warnock (2006) and Warnock and Warnock (2005) for data on U.S. equity liabilities and Thomas, Warnock, and Wongswan (2004) for U.S. equity assets.”