Asian Holdings of US Treasury Securities: Trade Integration as a Threshold

Abstract

This paper empirically investigates if there have been any shift in regime with Asian holdings of long-term United States (US) Treasury securities, with particular attention paid to the role of growing regional integration in trade. A panel regression estimation of eight Asian countries for 1998–2004 confirms the striking persistency of the portfolio weight of US Treasury securities. It also reveals, without surprise, that the traditionally strong trade link with the US, as well as the exchange rate regime, explain the observed upward deviation of US Treasury securities from what is warranted by its market share. What is interesting, however, is that the estimated regime switches, as found when examined with a threshold estimation. The paper finds three thresholds that divide the sample into four regimes—a decreasing persistency as the intraregional trade link becomes tighter.