NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

International Capital Flows and U.S. Interest Rates

Francis E. Warnock, Veronica Cacdac Warnock

NBER Working Paper No. 12560
Issued in October 2006
NBER Program(s):   IFM   ME

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.

download in pdf format
   (196 K)

email paper

A non-technical summary of this paper is available in the November 2006 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (196 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12560

Published: Warnock, Francis E., and Veronica Cacdac Warnock, 2009, International Capital Flows and U.S. Interest Rates, Journal of International Money and Finance 28: 903-919.

Users who downloaded this paper also downloaded these:
van Wincoop and Tille w12856 International Capital Flows
Kaminsky, Reinhart, and Vegh When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies
Gourinchas and Jeanne w13602 Capital Flows to Developing Countries: The Allocation Puzzle
Rodrik and Velasco w7364 Short-Term Capital Flows
Kirabaeva and Razin w15599 Composition of International Capital Flows: A Survey
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us