The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds

Cassola, Nuno; Hortaçsu, Ali; Kastl, Jakub

doi:10.3386/w15158

Cited by 88 publications

(122 citation statements)

References 38 publications

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“…24 We believe that this model is more realistic than a complete information model because students are unlikely to be aware of all the reports that will be submitted by others. This assumption is commonly made in the analysis of other non-dominant strategy mechanisms, for example, in empirical analysis of auctions (Guerre et al, 2000;Cassola et al, 2013, among others).…”

Section: Rational Expectationsmentioning

confidence: 99%

“…The proposed two-step estimator uses insights from the industrial organization literature, specifically the estimation of empirical auctions (Guerre et al, 2000;Cassola et al, 2013), single agent dynamic models (Hotz and Miller, 1993;Hotz et al, 1994), and dynamic games (Bajari et al, 2007;Pakes et al, 2007;Aguirregabiria and Mira, 2007). As in the methods used in those contexts, we use a two-step estimation procedure where the distribution of actions from other agents is used in a first step estimator.…”

Section: Related Literaturementioning

confidence: 99%

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Demand Analysis using Strategic Reports: An application to a school choice mechanism

Agarwal

Somaini

2014

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Several school districts use assignment systems that give students an incentive to misrepresent their preferences. We find evidence consistent with strategic behavior in Cambridge. Such strategizing can complicate preference analysis. This paper develops empirical methods for studying random utility models in a new and large class of school choice mechanisms. We show that preferences are non-parametrically identified under either sufficient variation in choice environments or a preference shifter. We then develop a tractable estimation procedure and apply it to Cambridge. Estimates suggest that while 82% of students are assigned to their stated first choice, only 72% are assigned to their true first choice because students avoid ranking competitive schools. Assuming that students behave optimally, the Immediate Acceptance mechanism is preferred by the average student to the Deferred Acceptance mechanism by an equivalent of 0.08 miles. The estimated difference is smaller if beliefs are biased, and reversed if students report truthfully.

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Section: Rational Expectationsmentioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Demand Analysis using Strategic Reports: An application to a school choice mechanism

Agarwal

Somaini

2014

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“…They do not focus on the response of the overnight rate to auction outcomes. The second group of papers explores banks' bidding behavior in central bank auctions, see e. g. Linzert et al (2007), Bindseil et al (2009), andCassola et al (2009). Using individual bidding data, it can be shown that money market conditions significantly affect banks' bidding behavior.…”

Section: List Of Tablesmentioning

confidence: 99%

“…in order to make sure that they receive at least a minimum level of liquidity, see e.g. Cassola et al (2009). Finally, according to Välimäki (2008), banks may also bid at higher rates because they are uncertain about the auction's marginal rate.…”

Section: The Response Of Money Market Rates To Mro Auction Outcomes 3mentioning

confidence: 99%

Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

Abbassi¹,

Nautz²

2012

The North American Journal of Economics and Finance

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The Eurosystem's main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm that the level of MRO rates governed short-term money market rates before the financial crisis. Since the start of the financial crisis, however, the information content of MRO rates has changed. While the levels of MRO rates have lost much of their pre-crisis significance, the spread between the weighted average and the marginal MRO rate has become an important barometer for the actual situation in the money market during the crisis.Keywords: Monetary Policy Implementation; Central bank auctions; European Central Bank; Money markets and Financial Crisis; JEL classification: E43; E52; E58; D44 Non-technical SummaryThe relation between the Eurosystem's main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. The liquidity supply through MROs should ensure that short-term money market rates closely follow the MRO rates and that their volatility remains well contained. This central aim of monetary policy implementation has never been an easy task. Even before the financial crisis, a puzzling and unintended upward trend in the spread between the European overnight rate (Eonia) and the MRO rates indicated that the monetary transmission mechanism is not sufficiently understood. Since the start of the financial crisis, spreads between the ECB's main refinancing rates and the money market rates have been huge and persistent. In order to shed more light on the very beginning of the monetary transmission process in the euro area, this paper investigated how money market rates respond to new information revealed by an MRO auction outcome before and during the financial crisis.Our results show that the financial crisis changed the information content of MRO auctions in two important ways. First, we find that the information contained in the levels of the MRO rates has significantly declined since the outbreak of the crisis in

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“…Bindseil et al (2009) and Cassola et al (2013) …nd that the heterogeneity of bidders in liquidity auctions is relevant. Cassola et al (2013) analyze the evolution of bidding data from the European Central Bank's weekly re…nancing operations before and during the early part of the …nancial crisis.…”

mentioning

confidence: 99%

Market Power and Welfare in Asymmetric Divisible Good Auctions

Manzano

Vives

2016

SSRN Journal

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We analyze a divisible good uniform-price auction that features two groups each with a …nite number of identical bidders. At equilibrium the relative market power (price impact) of a group increases with the precision of its private information and declines with its transaction costs. An increase in transaction costs and/or a decrease in the precision of a bidding group's information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic-has more price impact and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payo¤ asymmetries. Price impact and the deadweight loss may be negatively associated. The results are consistent with the available empirical evidence.

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The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds

Cited by 88 publications

References 38 publications

Demand Analysis using Strategic Reports: An application to a school choice mechanism

Demand Analysis using Strategic Reports: An application to a school choice mechanism

Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

Market Power and Welfare in Asymmetric Divisible Good Auctions

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