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Journal Article
The emergence of \\"regular and predictable\\" as a Treasury debt management strategy
During the 1970s, U.S. Treasury officials revised the framework within which they selected the maturities of new notes and bonds. Previously, they chose maturities on an offering-by-offering basis. By 1982, the Treasury had ceased these "tactical" sales and was selling notes and bonds on a "regular and predictable" schedule. This article describes that key change in the Treasury's debt management strategy. The author shows that in 1975, Treasury officials financed an unusually rapid expansion of the federal deficit with a flurry of tactical offerings. Because the timing and maturities ...
Journal Article
Designing effective auctions for treasury securities
Most discussions of treasury auction design focus on the choice between two methods for issuing securities--uniform-price or discriminatory auctions. Although auction theory and much recent research appear to favor the uniform-price method, most countries conduct their treasury auctions using the discriminatory format. What are the main issues underlying the debate over effective auction design?
Journal Article
Central bank dollar swap lines and overseas dollar funding costs
In the decade prior to the financial crisis, foreign banks? exposure to U.S.-dollar-denominated assets rose dramatically. When the crisis hit in 2007, the banks? access to dollar funding came under severe duress, with potentially dire consequences for global financial markets that could also spread to U.S. markets. The Federal Reserve responded in December 2007 by establishing temporary reciprocal currency swap lines, or facilities, with foreign central banks designed to ameliorate dollar funding stresses overseas. Drawing on rigorous analysis of the swaps, as well as insights of other ...
Speech
Some observations and lessons from the crisis
Remarks at the Third Annual Connecticut Bank and Trust Company Economic Outlook Breakfast, Hartford, Connecticut.
Journal Article
The Treasury auction process: objectives, structure, and recent acquisitions
Treasury auctions are designed to minimize the cost of financing the national debt by promoting broad, competitive bidding and liquid secondary market trading. A review of the auction process-from the announcement of a new issue to the delivery of securities-reveals how these objectives have been met. Also highlighted are changes in the auction process that stem from recent advances in information-processing technologies and risk management techniques.
Working Paper
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 ...
Working Paper
Competing with asking prices
In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the ...
Working Paper
The multiple unit auction with variable supply
The theory of multiple unit auctions traditionally assumes that the offered quantity is fixed. I argue that this assumption is not appropriate for many applications because the seller may be able and willing to adjust the supply to the bidding. In this paper I address this shortcoming by analyzing a multi-unit auction game between a monopolistic seller who can produce arbitrary quantities at constant unit cost, and oligopolistic bidders. I establish the existence of a subgame-perfect equilibrium for price discriminating and for uniform price auctions. I also show that bidders have an ...
Working Paper
The fragility of discretionary liquidity provision - lessons from the collapse of the auction rate securities market
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive dataset constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as "market makers" before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such ...
Journal Article
Going once, going twice, sold: auctions and the success of economic theory
It has been said that, "the value of anything is not what it cost to produce, but what you can get for it at an auction." The U.S. government's proving just that with its auctioning off of telecommunication license.