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Capital Inflows and euro area long-term interest rates

Daniel Carvalho and Michael Fidora ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Capital flows into the euro area were particularly large in the mid-2000s and the share of foreign holdings of euro area securities increased substantially between the introduction of the euro and the outbreak of the global financial crisis. We show that the increase in foreign holdings of euro area bonds in this period is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, which is in line with previous studies that document a similar impact of foreign bond buying on US Treasury yields. These results are relevant for understanding developments both in the euro area and abroad, as lower levels of long-term interest rates resulting from foreign accumulation of euro area debt securities may have added to increased risk appetite and hunt for yield at the global level.

JEL-codes: E43 E44 F21 F41 G15 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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Related works:
Journal Article: Capital inflows and euro area long-term interest rates (2015) Downloads
Working Paper: Capital inflows and euro area long-term interest rates (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201410

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