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Official demand for US debt: implications for US real rates

Iryna Kaminska () and Gabriele Zinna ()

No 796, Bank of England working papers from Bank of England

Abstract: We estimate a structural term-structure model of US real rates, where arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors. Official demand affects rates by altering the aggregate price of duration risk, and thereby bond risk premiums. While foreign central banks’ demand contributed to reduce long-term real rates mainly in the years prior to the global-financial crisis, the Federal Reserve’s demand lowered rates during the QE period. Overall, the two-factor model, augmented to account for changing liquidity conditions, offers a good representation of real rates during the 2001–2016 period; however, we flag some caveats and possible extensions.

Keywords: Term structure of real rates; quantitative easing; global imbalances; Bayesian econometrics (search for similar items in EconPapers)
JEL-codes: F31 G10 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2019-05-03
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0796

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