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

67 Pages Posted: 18 Aug 2021 Last revised: 27 Nov 2023

See all articles by Rashad Ahmed

Rashad Ahmed

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2021

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.

Keywords: Bayesian VARs; Foreign official flows; Global savings glut; Identification via heteroskedasticity; Interest rate conundrum; International reserves; U.S. Dollar; SVARs

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)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
255
Abstract Views
1,686
Rank
214,809
PlumX Metrics