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

Rashad Ahmed and Alessandro Rebucci

Journal of International Economics, 2024, vol. 152, issue C

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; Price impact; U.S. dollar; SVARs (search for similar items in EconPapers)
JEL-codes: E43 E44 F21 F30 G10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001016

DOI: 10.1016/j.jinteco.2024.103974

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