Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Standard view
Full view
of .
Look up keyword
Like this
6Activity
0 of .
Results for:
No results containing your search query
P. 1
wp1466

wp1466

Ratings: (0)|Views: 5,482|Likes:
Published by TBP_Think_Tank
wp1466
wp1466

More info:

Published by: TBP_Think_Tank on Apr 21, 2014
Copyright:Traditional Copyright: All rights reserved

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
See more
See less

06/13/2014

 
WP/
14/66
Official Demand for U.S. Debt: Implications for U.S. real interest rates
 Iryna Kaminska and Gabriele Zinna
 
© 2014 International Monetary Fund WP/
14/66
 
IMF Working Paper
Institute for Capacity Development
Official Demand for U.S. Debt: Implications for U.S. real interest rates Prepared by Iryna Kaminska and Gabriele Zinna
 
Authorized for distribution by Ray Brooks April 2014
Abstract
By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In  particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium. JEL Classification Numbers: F31, G10 Keywords: Term structure of interest rates, Large Scale Asset Purchases (LSAP), real yield curve, Bayesian estimation, international reserves Author’s E-Mail Addresses: ikaminska@imf.org, gabriele.zinna@esterni.bancaditalia.it
 
We would like to thank Ray Brooks for helpful discussions and guidance. We would also like to thank Ales Bulir, Stefania D'Amico, Francesco Columba, Jason Weiss, and IMF seminar participants for valuable comments. Ross Irons provided excellent editorial assistance. The usual disclaimer applies.
This Working Paper should not be reported as representing the views of the IMF or the Bank of Italy.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF, the Bank of Italy or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
 
2
C
ONTENTS
P
AGE
 
I. Introduction ............................................................................................................................3 II. Recent developments in the US Treasury markets ................................................................5 A.
 
Foreign Official Purchases and interest rate conundrum ...............................................5 B.
 
Fed unconventional policies: LSAP1, LSAP2, and MEP ..............................................7 III. Literature review ................................................................................................................10 IV. Model .................................................................................................................................12 V. Estimation ...........................................................................................................................15 A.
 
Data ..............................................................................................................................15 B.
 
Econometric methodology ...........................................................................................19 VI. Estimation Results .............................................................................................................21 A. Model fit, estimated factors and bond premia ...............................................................21 B. Demand factor analysis .................................................................................................25 VII. Concluding remarks .........................................................................................................36 References ................................................................................................................................37 Tables 1.
 
Yield summary statistics and PC analysis .........................................................................16 2.
 
Estimated parameters of the model ....................................................................................21 3.
 
Demand factor parameters .................................................................................................27 4.
 
Impact of foreign officials’ demand for treasuries on the term structure of real rates ......29 5.
 
Impact of Federal Reserve asset purchase policies on the term structure of real rates ......30 6.
 
Explaining differences between official observed and filtered demand factors ................35 Figures 1.
 
Estimated ownership of US Treasury securities ..................................................................6 2.
 
Fed Treasury holdings across different maturity segments .................................................8 3.
 
US Treasury debt outstanding ............................................................................................10 4.
 
Measures of demand pressures in the US Treasury market ...............................................17 5.
 
Observed yields and measurement errors ..........................................................................22 6.
 
Estimated factors ................................................................................................................23 7.
 
Factor loading ....................................................................................................................24 8.
 
Real interest rates decomposition ......................................................................................26 9.
 
The cumulative effects of demand pressures on real rates ................................................32 10.
 
Filtered and observed demand factors ...............................................................................34 Technical Appendix I: Model Details ......................................................................................39 Technical Appendix II: MCMC estimation details ..................................................................42

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->