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Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies

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Arslanalp S., Poghosyan T.

Journal of Banking and Financial Economics

2016

issue 2(6)

45-67

Asset allocation decisions of international investors are at the core of capital flows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004‒2012. We find that a one percentage point increase in the share of government debt held by foreign investors can explain a 6‒10 basis point reduction in long-term sovereign bond yields over the sample period. Accordingly, international flows to core advanced economy bond markets over 2008‒12 are estimated to have reduced 10-year government bond yields by 40‒65 basis points in Germany, 20‒30 basis points in the U.K., and 35‒60 basis points in the U.S. Incontrast, foreign outflows are estimated to have raised 10-year government bond yields by 40‒70 basis points in Italy and 110‒180 basis points in Spain during the same period. These results suggest that changes in the foreign investor base for sovereign debt can have economically and statistically signifi cant effects on sovereign bond yields, independent of other standard macroeconomic determinants of bond yields.

Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy

81%

Bova E., Medas P., Poghosyan T.

Journal of Banking and Financial Economics

2018

issue 1(9)

103-122

Resource-rich countries face large and persistent shocks, especially coming from volatile commodity prices. Given the severity of the shocks, it would be expected that these countries adopt countercyclical fiscal policies to help shield the domestic economy, either through larger spending at times of commodity busts or lower spending during commodity booms. Taking advantage of a new dataset covering 48 non-renewable commodity exporters for the period 1970–2014, we investigate whether fiscal policy does indeed play a stabilizing role. Our analysis shows that fiscal policy tends to have a procyclical bias (mainly via expenditures) and, contrary to others, we do not find evidence that this bias has declined in recent years. Further, we find that the adoption of fiscal rules does not seem to reduce procyclicality in a significant way, but the quality of political institutions does matter. Finally, we find that non-commodity revenues tend to respond only to persistent changes in commodity prices.

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2 Journal of Banking and Financial Economics

2 Poghosyan T.

1 Arslanalp S.

1 Bova E.

1 Medas P.

1 2018

1 2016

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Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies

Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy