Dieter Nautz

Short‐Term Herding of Institutional Traders: New Evidence from the German Stock Market

This paper employs a new and comprehensive data set to investigate short-term herding behavior of institutional investors. Using data of all transactions made by financial institutions in the German stock market, we show that herding behavior occurs on a daily basis. However, in contrast to longer-term herding measures obtained from quarterly data, results based on daily data do not indicate that short-term herding tends to be more pronounced in small capitalized stocks or in times of market stress. Moreover, we find that herding measures based on anony- mous transactions can lead to misleading results about the behavior of institutional investors during the recent financial crisis.

The information content of central bank interest rate projections: Evidence from New Zealand

The Reserve Bank of New Zealand was the first central bank to publish interest rate projections as a tool for forward guidance of monetary policy. This paper provides new evidence on the information content of interest rate projections for market expectations about future short-term rates before and during the financial crisis. While the information content of interest rate projections decreases with the forecast horizon in both periods, we find that their impact on market expectations has declined significantly since the outbreak of the crisis.

Optimal bidding in multi-unit auctions with many bidders

Abstract We derive the optimal bid functions for discriminatory and competitive multi-unit private value auctions, assuming bidders act as price-takers. The results suggest that the competitive auction is superior to the discriminatory auction, both in terms of efficiency and simplicity.

Inflation, Price Dispersion and Market Integration through the Lens of a Monetary Search Model

Recent monetary search models emphasize that the real effects of inflation via its impact on price dispersion depend on the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation-price dispersion nexus is predicted to be asymmetrically V-shaped which implies an optimal inflation rate above zero. For highly integrated markets, however, theory suggests that the impact of inflation on price dispersion disappears. Employing price data of the European Union member states, this paper is the first that empirically tests these implications of monetary search theory.

Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany

Abstract The recent literature on the welfare cost of inflation emphasizes inflation’s effect on the variability of relative prices. Expected and unexpected inflation have both been proposed to increase relative price variability (RPV) and, thereby, to distort the information content of nominal prices. This paper presents new evidence on the impact of inflation on RPV in Germany. Our results indicate that the influence of expected inflation disappears if a credible monetary policy stabilizes inflationary expectations on a low level. Yet the significant impact of unexpected inflation suggests that even low inflation rates can lead to welfare losses by raising RPV above its efficient level.

Monetary Policy Implementation and the Federal Funds Rate

This paper investigates how the implementation of monetary policy affects the dynamics and the volatility of the federal funds rate. Since the early 1980s, the most important changes in the Feds conduct of monetary policy refer to the role of the federal funds rate target and the reserve requirement system. We show that the improved communication and transparency regarding the federal funds rate target has significantly increased the Feds influence on the federal funds rate since 1994. By contrast, the declining role of required reserves in the US has contributed to higher federal funds rate volatility. Our results suggest that the introduction of remunerated required reserves will further enhance the controllability of the federal funds rate.

Banks' demand for reserves when future monetary policy is uncertain

Abstract The extensive use of revolving securities repurchase agreements has increased the flexibility of the money market management of many European central banks. Using an extended reserve management model, this paper shows that a flexible central bank can influence money market conditions just by being more or less vague or determined about its future course of monetary policy. Employing ARCH-in-mean models for German money market rates confirms that more uncertainty reduces banks’ demand for borrowed reserves and, thereby, leads to decreasing interest rates in the interbank money market.

Bid shading and risk aversion in multi-unit auctions with many bidders

Abstract We extend the analysis of optimal price taking bidding in multi-unit auctions to allow for risk aversion and a continuous random stop-out price. We show that in a discriminatory auction risk averse bidders should bid less aggressively than risk neutral bidders. However, bid shading is optimal at each price, which implies, with complete certainty, inefficient trade. This is in sharp contrast to competitive auctions where truthful bidding is optimal even under risk aversion.

Inflation and Relative Price Variability in the Euro Area: Evidence from a Panel Threshold Model

The impact of inflation on Relative Price Variability (RPV) generates an important channel for real effects of inflation. This article provides first evidence on the empirical relation between inflation and RPV in the euro area. Stirred by the widespread use of inflation caps or target bands in monetary policy practice, we are particularly interested in threshold effects of inflation. In line with the predictions of monetary search models, our results indicate that expected inflation significantly increases RPV only if inflation is either very low (below 0.95% per annum (p.a.)) or very high (above 4.96% p.a.).

How Auctions Reveal Information: A Case Study on German REPO Rates

Securities repurchase agreements (REPOs) have become the Bundesbanks most important tool for its ongoing money market management and the control of the monetary base. In the fall of 1988, the Bundesbank changed the applied auction rule in order to prevent banks from submitting exaggerated bids. Focusing on the information content of a resulting REPO rate, this paper investigates how German money market rates react to auction results. Evidence will be found that the response of the money market to a new REPO rate reflects the applied auction rule. Copyright 1997 by Ohio State University Press.