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Dollar reserves and U.S. yields: Identifying the price impact of official flows

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  • Ahmed, Rashad
  • Rebucci, Alessandro

Abstract

By exploiting changes in the volatility of U.S. Treasury yields and foreign official (FO) flows into U.S. Treasuries after the 2008 Global Financial Crisis, we identify a FO flow shock via heteroskedasticity in a structural VAR. We estimate that a $100B FO flow shock moves 5 and 10-year U.S. yields by about 100 basis points within a month. An event study of the intraday U.S. Treasury yield curve response to Japan’s FX intervention in September 2022 validates our VAR estimates. Our findings imply that a 1% reduction in the Dollar share of China’s reserves could raise long-term U.S. yields by about 20 basis points.

Suggested Citation

  • Ahmed, Rashad & Rebucci, Alessandro, 2024. "Dollar reserves and U.S. yields: Identifying the price impact of official flows," Journal of International Economics, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001016
    DOI: 10.1016/j.jinteco.2024.103974
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    More about this item

    Keywords

    Bayesian VARs; Foreign official flows; Global savings glut; Identification via heteroskedasticity; Interest rate conundrum; International reserves; Price impact; U.S. dollar; SVARs;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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