Uphill Capital Flows and the International Monetary System

July 26, 2017

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Format: Chicago

Balazs Csonto, and Camilo E Tovar Mora. Uphill Capital Flows and the International Monetary System, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0–2.4 basis points at maturities of 2–3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5–1.8 basis points.

Subject: Balance of payments, Capital flows, Central banks, Financial institutions, Financial services, International reserves, Reserves accumulation, Securities, Yield curve

Keywords: Capital flows, Foreign exchange, Foreign holdings, Global, International reserves, Premium, Reserve accumulation, Reserves accumulation, Securities, Term premium, Treasuries, Treasury securities, U.S. Treasuries, Uphill capital flows, WP, Yield curve, Yield dynamics

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/174
Stock No:

WPIEA2017174
ISBN:

9781484311424
ISSN:

1018-5941

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