"Official Demand for U.S. Debt: Implications for U.S. Real Rates"
How big is the impact of official investors on long-term yields? We estimate a structural term-structure model in which arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors. Demand pressures can affect real rates by altering the aggregate price of duration risk, and therefore through changes in the bond risk premia. We find that foreign official demand pressures contributed to reduce US long-term real yields largely in the 2001-08 period, whereas the Fed mainly during the subsequent quantitative easing program. Fed pressures arise not only from the expansion of the Fed's balance sheet, but also from the extension of its maturity profile while keeping its size constant.
Iryna Kaminska is an Adviser in the Monetary Analysis Directorate of the Bank of England. She has previously worked at the International Monetary Fund (2011-2014) and in the Financial Stability area of the Bank (2009-2011). Iryna received her PhD in Economics from Bocconi University (Milano), analyzing jointly term structure of interest rates and macro-economic dynamics. Her more recent research interests are in the areas of empirical asset pricing, monetary policy (in particular, unconventional monetary policy), and international finance. Iryna has published in leading academic journals such as the ‘Journal of Econometrics’ , ‘Review of Finance’, ‘Journal of Banking and Finance’, ‘Journal of Empirical Finance’ etc.
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