Publication Type
Journal Article
Version
publishedVersion
Publication Date
11-2024
Abstract
PurposeWe estimate the marginal cost curve of each dealer in each auction, based on structural models of the multiunit discriminatory-price auction.Design/methodology/approachAuction theory has ambiguous implications regarding the relative performance of three formats of multiunit auctions: uniform-price, discriminatory-price and Vickrey auctions. We evaluate the performance of these three auction formats using bid-level data of the Federal Reserve’s purchase auctions of agency MBS from June 2014 through November 2014.FindingsOur results suggest that neither uniform-price nor Vickrey auctions outperform discriminatory-price auctions in terms of the total expenditure. However, Vickrey auctions outperform discriminatory-price auctions in terms of efficiency, with the efficiency gain around 0.74% of the surplus that dealers extract on average.Originality/valueTo the best of our knowledge, this paper provides the first structural analysis of the auctions used by the Federal Reserve in implementing its monetary policies.
Keywords
Agency MBS, Auction, Dealer, Federal Reserve, Structural models, E52, G2, D43
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
China Finance Review International
Volume
14
Issue
4
First Page
649
Last Page
665
ISSN
2044-1398
Identifier
10.1108/CFRI-09-2024-0524
Publisher
Emerald
Citation
BONADI, Pietro; HORTACSU, Ali; and SONG, Zhaogang.
An empirical test of auction efficiency: Evidence from MBS auctions of the Federal Reserve. (2024). China Finance Review International. 14, (4), 649-665.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7917
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://api.elsevier.com/content/abstract/scopus_id/85208252035
Additional URL
https://doi.org/10.1108/CFRI-09-2024-0524