Finance and Economics Discussion Series (FEDS)
February 1998
The Auctions of Swiss Government Bonds: Should the Treasury Price Discriminate or Not?
Daniel Heller and Yvan Lengwiler
Abstract:
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. Based on these bid functions, we determine which auction format minimizes the government's costs of financing its debt.
Full paper (286 KB Postscript)Keywords: Government bonds, multi-unit auctions, price discrimination, uniform price
PDF: Full Paper
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