Uphill Capital Flows and the International Monetary System

31 Pages Posted: 5 Sep 2017

See all articles by Balazs Csonto

Balazs Csonto

International Monetary Fund (IMF)

Camilo E. Tovar

International Monetary Fund

Date Written: July 2017

Abstract

Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0-2.4 basis points at maturities of 2-3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5-1.8 basis points.

Keywords: International financial markets, Central banks and their policies, Uphill capital flows, yield curve, term premium, US Treasuries, reserve accumulation, foreign holdings, Financial Markets and the Macroeconomy, International Policy Coordination and Transmission, International Institutional Arrangements, Globalization: Macroeconomic Impacts

JEL Classification: E43, E44, E58, F42, F55, F62, G15

Suggested Citation

Csonto, Balazs and Tovar, Camilo E., Uphill Capital Flows and the International Monetary System (July 2017). IMF Working Paper No. 17/174, Available at SSRN: https://ssrn.com/abstract=3030767

Balazs Csonto (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Camilo E. Tovar

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://blog-imfdirect.imf.org/bloggers/camilo-e-tovar/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
20
Abstract Views
370
PlumX Metrics