ABSTRACT
This paper investigates the effects of foreign official purchases of U.S. treasuries on mortgage rates from January 1985 to June 2007 using a proxy structural vector autoregression (SVAR) model, where shocks to foreign official inflows to treasuries are identified by their correlation with foreign exchange interventions. Although mortgage rates significantly decrease in response to positive shocks to foreign official purchases of U.S. treasuries, these shocks only explain a small fraction of the variation in the U.S. mortgage rate.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 We also used foreign exchange interventions from countries like India and Brazil as proxy variables, but they did not sufficiently correlate with foreign official inflows into U.S. treasuries.
2 SBIC information criteria suggests one lag. However, the results are robust to different lag-length choices.