The Impact of Chinese Purchases of U.S. Government Debt on the Treasury Yield Curve
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Radhames A. Lizardo
Examining monthly data from May of 1985 to May of 2008, we find that increases in Chinese purchases of U.S government debt lead to decreases in Treasury yields. The effect is stronger as the maturity increases: a one percent increase in purchases of U.S. Treasuries by Chinese investors lowers the two-year (ten-year) Treasury yield by 10 to 38 basis points (39 to 55 basis points) on average, ceteris paribus . Overall, the demand-side variable capturing Chinese purchases of U.S. Treasuries improves the cointegrating properties of U.S. interest rates. In-sample and out-of-sample forecasts reinforce that the model with Chinese purchases greatly outperforms basic models of the yield curve. This study has implications for the business world since we document that Chinese investors contribute to lower U.S. Treasury yields and thus to lower U.S. interest rates in general.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- How do International Financial Flows to Developing Countries Respond to Natural Disasters?
- The Impact of the Movement of Labour: Results from a Model of Bilateral Migration Flows
- The Impact of Chinese Purchases of U.S. Government Debt on the Treasury Yield Curve
- Governments of the Left and Openness to Imports
- What's New in Our World?
- International Financial Integration, Investment and Economic Performance in Sub-Saharan African Countries
- Greece's "Unpleasant Arithmetic" Containing the Threat to the Global Economy
- The Impacts of Trade Liberalisation and Technological Change on GDP Growth in Indonesia: A Meta Regression Analysis
- Growth Diagnostics: The Puzzle of Pakistan's Lagging Economic Growth
