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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page International Capital Flows and U.S. Interest Rates
Francis E. Warnock; Veronica C. Warnock
2005-840  (September 2005)

Abstract:  Foreign flows have an economically large and statistically significant impact on long-term interest rates. Controlling for various macroeconomic factors we estimate that had there been no foreign flows into U.S. bonds over the past year, the 10-year Treasury yield would currently be 150 basis points higher; even a step-down to average inflows would imply an increase of 105 basis points. The impact of the headline-making foreign official flows -- a relatively small subset of total foreign accumulation of U.S. bonds -- is also significant but markedly smaller. Our results are robust to a number of alternative specifications.

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Bond yields, Japan, China

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