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Economics and Finance Faculty Publications and Presentations
Document Type
Article
Publication Date
12-2011
Abstract
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.
Recommended Citation
Lizardo, Radhames A., and Andre Varella Mollick. “The Impact of Chinese Purchases of U.S. Government Debt on the Treasury Yield Curve.” Global Economy Journal 11, no. 4 (December, 2011): 1850244. https://doi.org/10.2202/1524-5861.1803.
Publication Title
Global Economy Journal
DOI
10.2202/1524-5861.1803
Comments
© 2011, Walter de Gruyter. Original published version available at https://doi.org/10.2202/1524-5861.1803.