Centre for Development Economics
Department of Economics
Delhi School of Economics
ANNOUNCE A SEMINAR
by
Rohit Lamba
(Cornell University)
(Thursday, January 9, 2025, at 2:15 PM IST )
Venue: Amex Room
Abstract:-
Treasuries all over the world raise sovereign debt through an auction which is typically conducted by the central bank. In times of financial crisis, when volatility is high, the auction can fail to discover the right price. To capture the existence and extent of this failure, this paper looks at the bid level data in the market for Indian treasury bills during the (in)famous ‘taper tantrum’ episode of 2013. It augments the standard linear independent private values model for structural estimation of multi-unit auctions with (a) risk averse preferences, and (b) common uncertainty in valuations. It finds that bid shading increases substantially during the taper tantrum period leading to a big loss to the exchequer. A large part of the increase in bid shade is explained by (i) the rise in uncertainty and so the associated risk premia sought by each bidder, and (ii) the strategic impact of such risk premia being sought in a competitive auction environment. These channels would be missed by the standard model. An alternate to the auction, viz. fixed price tenders, is discussed as a plausible mechanism to sell sovereign bonds during crisis episodes.