Bulletin n. 2-3/2013
February 2014
CONTENTS
  • Section A) The theory and practise of the federal states and multi-level systems of government
  • Section B) Global governance and international organizations
  • Section C) Regional integration processes
  • Section D) Federalism as a political idea
    • Cassola, Nuno; Hortaçsu, Ali; Kastl, Jakub
    The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short‐Term Funds
    in Econometrica , volume 81 n.4 ,  2013 ,  1309-45
    We study European banks’ demand for short-term funds (liquidity) during the sum- mer 2007 subprime market crisis. We use bidding data from the European Central Bank’s auctions for one-week loans, their main channel of monetary policy implemen- tation. Our analysis provides a high-frequency, disaggregated perspective on the 2007 crisis, which was previously studied through comparisons of collateralized and uncollat- eralized interbank money market rates which do not capture the heterogeneous impact of the crisis on individual banks. Through a model of bidding, we show that banks’ bids reflect their cost of obtaining short-term funds elsewhere (e.g., in the interbank market) as well as a strategic response to other bidders. The strategic response is empirically im- portant: while a naïve interpretation of the raw bidding data may suggest that virtually all banks suffered an increase in the cost of short-term funding, we find that, for about one third of the banks, the change in bidding behavior was simply a strategic response. We also find considerable heterogeneity in the short-term funding costs among banks: for over one third of the bidders, funding costs increased by more than 20 basis points, and funding costs vary widely with respect to the country-of-origin. The funding costs we estimate using bidding data are also predictive of market- and accounting-based measures of bank performance, reinforcing the usefulness of “revealed preference” in- formation contained in bids
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