Recent increases in East Asian purchases of US treasury securities has led to growing concern over its impact on the US economy, particularly on the US long-term and shortterm interest rates. The vector error-correction model results revealed the presence of long-run causal relations among the federal funds rate, the 10-year Treasury rate and the East Asian demand in addition to a unidirectional short-run causal relation from the 10-year rate to the Federal funds rate. The variance decomposition and impulse response findings indicated that the Asian demand for US assets has a limited but negative impact on the 10-year US Treasury interest rate. The transmission of the East Asian demand shock on both interest rates was almost immediate. The Federal funds rate is found to have a significant negative impact on the long-term rate.
Hurley, D. T. (2009). Linkages among US Interest Rates and East Asian Purchases of US Treasury Securities. Global Economic Review, 38(4), 397-408.