Federal Reserve shocks: which securities really flow?

Julia Schmidt, Maéva Silvestrini and Urszula Szczerbowicz

Working papers from Banque de France

Abstract: This paper challenges the conventional wisdom that US monetary policy tightening attracts foreign capital through purchases of US Treasuries. Using bilateral data on US foreign assets and liabilities, we show that much of the observed capital inflows into the US is actually due to US investors repatriating funds from foreign equities. This highlights important heterogeneity between domestic and foreign investors. Extending the analysis to Central Bank Information shocks—monetary surprises conveying additional economic information—we document a distinct global portfolio rebalancing characterized by risk-on behavior, with US investors increasing foreign equity holdings and foreign investors shifting into US equities.

Keywords: Monetary Policy; Spillovers; Capital Flows (search for similar items in EconPapers)
JEL-codes: E52 F44 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2026
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1040

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