Federal Reserve Participation in Public Treasury Offerings
This paper describes the evolution of Federal Reserve participation in public Treasury offerings. It covers the pre-1935 period, when the Fed participated on an equal footing with other investors in exchange offerings priced by Treasury officials, to its present-day practice of reinvesting the proceeds of maturing securities with “add-ons” priced in public auctions in which the Fed does not participate. The paper describes how the Federal Reserve System adapted its operating procedures to comply with the 1935 limitations on its Treasury purchases, how it modified its operating procedures ...
Disadvantaged business enterprise goals in government procurement contracting: an analysis of bidding behavior and costs
Programs that encourage the participation of disadvantaged business enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, we examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. We study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, we use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects ...
Treasury auctions: what do the recent models and results tell us?
Auctions, as selling mechanisms, have existed for well over two thousand years. Today, one of the most important auction markets in the world is that of U.S. Treasury securities; approximately $2 trillion worth of Treasury securities was auctioned in 1995. ; A long-standing debate has been about selecting an appropriate auction format for various Treasury securities, a format that would be least subject to possible manipulation by individual traders or a cartel and also result in the highest possible revenues for the Treasury. The Treasury is currently experimenting with what is called a ...
Insider rates vs. outsider rates in lending
The presence of private information about a firm can affect the competition among potential lenders. In the Sharpe (1990) model of information asymmetry among lenders (with the von Thadden (2004) correction), an uninformed outside bank faces a winner?s curse when competing with an informed inside bank. This paper examines the model?s prediction for observed interest rates at an inside vs. outside bank. Although the outside bank wins more bad firms than the inside bank, the winner?s curse also causes the outside rate conditional on firm type to be lower in expectation than the inside rate ...
Primary Dealers’ Waning Role in Treasury Auctions
In this post, we quantify the macroeconomic effects of central bank announcements about future federal funds rates, or forward guidance. We estimate that a commitment to lowering future rates below market expectations can have fairly strong effects on real economic activity with only small effects on inflation.
The auctions of Swiss government bonds: should the Treasury price discriminate or not?
Ever since Friedman's (1960) contribution, there has been an ongoing controversy about whether the Treasury should auction off its government debt with a discriminatory or with a uniform price format. Many industrialized countries, the United States or Germany, for instance, use discriminatory auctions, while Switzerland applies to uniform price rule. Using recent contributions to multi-unit auction theory, we analyze data on the bids submitted to Swiss Treasury bond auctions over the last three years. We then construct hypothetical bid functions that would occur under price discrimination. ...
Selection bias, demographic effects, and ability effects in common value auction experiments
We find clear demographic and ability effects on bidding in common value auctions: inexperienced women are much more susceptible to the winner's curse than men, controlling for SAT/ACT scores and college major; economics and business majors substantially overbid relative to other majors; and those with superior SAT/ACT scores are much less susceptible to the winner's curse, with the primary effect coming from those with below median scores doing worse, as opposed to those with very high scores doing substantially better, and with composite SAT/ACT score being a more reliable predictor than ...
Auctions implemented by the Federal Reserve Bank of New York during the Great Recession
During the Great Recession, the Federal Reserve implemented several novel programs to address adverse conditions in financial markets. Three of these temporary programs relied on an auction mechanism: the Term Auction Facility, the Term Securities Lending Facility, and the disposition of the Maiden Lane II portfolio. These auctions differed from one another in several dimensions: their objectives, rules, and the financial asset being traded. The object of this paper is to document, compare, and provide a rationale for the mechanics of the different auctions implemented by the Federal Reserve ...
The implementation of recent monetary policy actions
Testimony before the Subcommittee on Oversight and Investigations, Committee on Financial Services, U.S. House of Representatives.> .