Dollar Reserves and U.S. Yields: Identifying the Price Impact of Official Flows

64 Pages Posted: 18 Aug 2021 Last revised: 20 Jun 2022

See all articles by Rashad Ahmed

Rashad Ahmed

U.S. Department of the Treasury - Office of the Comptroller of the Currency

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: August 13, 2021

Abstract

This paper shows that the impact of foreign official demand for USTs on U.S. yields is much larger when critical sources of endogeneity are addressed. We exploit changes in the volatility of foreign official UST flows before and after the 2008 Global Financial Crisis to identify a VAR of U.S. yields via heteroskedasticity. A foreign official flow shock of $100B moves 5-year, 10-year, and 30-year yields by more than 100 basis points on impact, converging to the range of estimates previously reported in the literature within 6 months.

Keywords: Capital flows; Global factors; Global savings glut; International reserves; Monetary policy; Yield curve

JEL Classification: E43, E44, F21, F30, G10

Suggested Citation

Ahmed, Rashad and Rebucci, Alessandro, Dollar Reserves and U.S. Yields: Identifying the Price Impact of Official Flows (August 13, 2021). Available at SSRN: https://ssrn.com/abstract=3906199 or http://dx.doi.org/10.2139/ssrn.3906199

Rashad Ahmed (Contact Author)

U.S. Department of the Treasury - Office of the Comptroller of the Currency ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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