 Now we can move to another paper that also studies subreddit market aspects in the euro area and that will be presented by Guillermo O'Donies and the discussion will be Federica Romé and So yeah, I think I would ask Guillermo to share his slide. Thank you Okay, thank you Cornelia. Thank you for the introduction. Thank you the organizers again for inviting me It's a true pleasure to be in this in this conference So I'm gonna present this paper with alcohol who's a colleague at Penn and Dan Nujan from UT Austin And this gonna be again as about sovereign debt but from the start I want to mention that in contrast to most of the literature of sovereign debt that is motivated mostly by secondary markets here we want to take a step back and think about how the design of primary markets affect the behavior of sovereign debt and why is this important because in primary market is mostly the market where The cost of financing of governments is determined where governments go and raise funds. So understanding How they operate we think is important to understand more broadly what matters for for governments So let me just Start saying that sovereign bonds are typically sold in sequences of options as you may know There's called the most commonly used protocol is the discriminatory price protocol Which means effectively that if you submit a bid for a bond you pay that bid if you're accepted Milton Friedman famously in 1959 Mention in front of Congress that this is a bad idea because of a winner's score. So if you know that you're Playing or beating against informed investors at the disadvantage you may decide to Not participate that's going to lower the price of government bonds and that's bad for governments the US follow Friedman Advice but many other countries decided not to So a natural question is what are the consequences of this choice in previous work? Using a Mexican status data. We show that indeed this problem of asymmetric information is very much present in auctions In discriminatory price auctions and in that world we show that in fact it has important implications for governments obtaining Low average prices for their bonds In other paper, we also show that this is not all bad because there is a silver lining of discriminatory price auctions Which is some sort of insurance during crisis Governments can obtain prices that are higher that would obtain other ones So what I gonna chat today is a little bit different still using this This protocol discriminatory price of protocol introducing information choice or asking where this asymmetric information comes from What is the term me what the term is it? We want to introduce many countries to think about spillover so We know that discriminatory a little bit just to mention what they gonna present These are like a little bit of spoilers Discriminatory protocols offer rents to those that are informed and I need an important question is when is information acquired? Not surprisingly we want to show that there are two main forces that determine whether investors want to acquire information about They were about of the country that determine the sovereign bond which are how much exposed they are they are to the bones and the fundamentals of the country a Little more surprising. We also show that there is a strategic complementarity or this protocol generated strategic complementarity and potentially multiplicity On information acquisition now. We also know that global investors can choose in which countries to invest so a question is how informations choices will affect capital flows and We want to show that Capital tends to flow out of terrible in countries in when there are bad news into what we call not safe Heavens ignorance heavens so in a way related to what stein already introduced in the previous paper What we're gonna pull put forward what he mentioned that? Elements of convenience years may be liquidity safety many other characteristics here We're highlighting a sort of information component on convenience years And as we're gonna discuss we will see that Germany may not be only a safe heaven Maybe also an ignorance heaven in a way that I gonna describe ignorance in the sense that it doesn't attract much information acquisition So the main punchline that I gonna convey today In the paper can be summarizing these two lines. So if you just Focus on on the next 30 seconds This is basically the main mechanism that they're gonna Develop in the next minutes So imagine that I'm an investor I care about diversification and I'm investing in two countries country one and country two Let's say 50 50 percent of my on my funds. Okay. Now something bad happens in country one I have two choices either I get informed better on what what is going on in country one Or I just move my funds out of country one If I go to the first one and I decide to get informed about country one since I'm in a In a in a better position to invest in country one I'm gonna move more of my funds to country one if I decide to run away from country one Then of course, I'm gonna move more funds to country two where I'm uninformed So this immediately disinformed endogenous informations gonna generate some force of segmentation That goes against a standard diversification that investors strive for now. This doesn't stop here Because now this imagine that I decided to move my funds to Country two which is in my words and ignorance heaven because no one gets informed And let's say that country two is not related at all with country one in terms of fundamental So there is no reasons for contagion Fundamentally now the fact that I'm more invested and more exposed to country two Induce me to acquire information also about country two so now there's gonna be a Spillover on the incentives to acquire information in a country that it has nothing to do Where the source of the fundamental shock and this gonna show up in the price as I'm going to show you of the country of country Too that would be captured. Let's say for these convenience years as this time was talking about So you may be wondering rightly so at this point. Okay, you started mentioning secondary markets So far you haven't mentioned about second anything of a second the markets that doesn't eliminate everything that you that you're saying In fact, what we're gonna show we're gonna exploit secondary markets And we're gonna show that if something the existence of very liquid secondary markets Induce more investors to acquire information. So make everything that they just said a Stronger so that strengthen the message number one That's it on the theoretical side and then also in the theoretic on the empirical side now. It gives us interesting empirical Testable implications on the interaction between primary and secondary markets to test whether a symmetric information indeed is Is a is an issue and whether indeed it changes over time So based on these theoretical insights, we want to apply Applied to key European countries that use discriminatory auctions Germany, Portugal and Italy We're gonna focus on the eurozone crisis to that as we all know in this forum produce a number of striking facts Stein just a show very Very quickly some years first come up until the crisis then they decoupled and in some countries Yell went down like in Germany years were first stable But then they become volatile only in some countries not in others in German not and markets were first well integrated in Europe And then they became more segmented our theory will account for these patterns and some more and there's gonna be this additional validation from in primary and secondary markets that I say gonna show you comes from a Mark cross market spreads and auction informatics So let me skip the literature review for the sake of time and let me go straight to the model I'm gonna show you a very I will not go on formalities. I just want to mention the main the main elements So imagine that there is just one period there is investment on bonds at the beginning and payoffs at the end of the period There are two governments in this model index by j1 and 2 and they need to raise some amount of money How they're gonna do that they're gonna sell auction bonds Simultaneously these bonds gonna default exogenous Lee So you can you may imagine behind these that there is some fiscal process, but I will not talk about that In case of the fall investors do not recover anything Each country may be living in one of two states bad or good that just determine whether the probably what is it? This exogenous the full probability the full probability in the bad state in country j is higher than the default probability in the good state We're gonna call the unconditional the full probability by K bar and a main instruction that we're gonna hold here Is that the probability of the fall is not affected by prices that would just amplify effects So who is gonna buy this who are gonna buy these ones? There's gonna be you need massive investors with standards here at a utility. They have some endowment They just have a portfolio problem They have to choose what how much to invest in this risk risky bonds that can default or in risk-free storage And they don't have any water. So basically they decide in between a risky and a risk response All investors have common priors about the states in each country But they can and this is where information comes from endogenous information acquisition They can learn the realization of the state in each country or in both if they want by paying some utility costs an Important element that they're gonna hold the day and an important piece of notation is that we're gonna call the fraction of informed investors In country j by nj and this is a little bit what gonna determine the extent of a symmetric information in the country Now when they invest investors gonna split in two traders imagine that the investor is a bank They're gonna have two divisions each one is specialized in investing in one of the two banks And there is no communication between them that just reduces the dimensionality of the problem Now the important part that is the tricky one is the auction how the auction works So as I mentioned we want to model the multi-unit discriminatory also pay your bid auction that works as follow If I'm an investor you can submit any pair of bits that says I want to buy this quantity of bonds at this price And it's a commitment for me to buy those bonds at that price if the government sells to me Okay, and I'm gonna pay that price Now government then is gonna collect all the beats gonna sort the beats from highest Decreasing in price orders from the highest bid to the lowest bid I'm gonna start selling from the highest bid to the lowest bid until it raises DJ Which is the amount of money that they want to raise at the price that they bought that the government stops selling bonds We're gonna call that marginal price Okay, production Since there are many bidders there's gonna be a unique marginal price for each state Now with all loss of generality what we're gonna assume But here you can show that in fact is a case is that if I'm a I may be an informed but I'm not as an investor. I Know how to do math so I can Back out with our all possible marginal prices in all possible states Okay, and I may not know which state it is but I can submit beats only at those marginal prices I never want to submit any bid and any other price because I pay more and get the same the same amount of bonds Okay, so investors can anticipate marginal prices. They can learn about marginal prices a lot of states from marginal prices But only after the auction follows and then it's too late Okay, that's when I create incentives here or gains from information How we want to model secondary markets playing vanilla after the auction closes There's gonna be a competitive market with a single market clearing. There is no short sales There is zero net supply and then secondary market is gonna operate under symmetric information Because everybody observes the marginal price in auction as I told you that's gonna be perfectly informative about the state And then the only trading motive in this model in secondary market We're gonna be a rebalancing portfolio in case that there are differences of portfolios across investors in primary markets All right So, let me tell you a little bit how the model or that's a model how the model Operates First I'm gonna show you one country and just the auction and then I'm gonna discuss in words What happens when you introduce the second country and secondary markets and then I'm gonna talk about all the application All right So as I mentioned the bidding strategies the main problem here is for the investor to know how to be How to put beats into this primary market for the inform This is just a portfolio problem because the inform investor knows exactly how risky they want for the uninformed However, it's a very tricky problem. It's a very complicated portfolio problem Why is that because imagine that there are two prices am I not informed the price in the good state is higher than the price of the Bad bond now if I don't know which one is gonna be operation I'm gonna submit bits at both prices So if the bond is good I'm gonna just buy at the high price at the high bid and that's fine because I'm paying the right price But if the bond is bad and the right price is a bad price I end up buying that bond at a very high price and that's why I'm worried If I'm an inform on top of that the fact that they're gonna buy any bid For good bonds that I put in many other states that links all the states when making my portfolio choice And that's where the game from information is gonna come from forget about the notation Here the main intuitively informed the game from being informed is that informed do not overpay for bad bonds And they avoid expect expenditure uncertainty. They know exactly when what they're buying when they're buying So this is what the fear of the winners course gonna lead an inform to be less at high price So if I'm an inform and I know that they're gonna end up buying bad bonds at a high price I made them I will tend not to submit bits at high prices that the discouragement that Friedman was talking Informally So formally basically there is two stages here for the investor So this is in reverse order There is a portfolio choice problem for the investor in which they choose the primary market bits to maximize the expected utility Subject to no borrow. Sorry. No short selling and no borrowing Secondary market will just have portfolio rebalancing stage But before all that the portfolio choice They have to decide whether to acquire information in one country in the other country or in both countries, okay? At a cost that is in terms of utility. So that's the problem the portfolio problem now, this is basically characterized by a standard a Condition so you can compute the marginal rate of substitution between default and repay which is the expected utility in case of default Expect the marginal utility in case of default divided expect the marginal utility in case of repayment again for the inform This is quite quite natural quite striking. It's very easy to do for the uninformed. However, you have this part here any Expected marginal utility in case of the fault of repayment has to be computed over all possible states in which your bid is In the money and in which the government sets you the bonds Okay, that's why all these marginal rate of substitutions are so linked across states for the uninformed Then the condition in equilibrium the optimal bidding is given by equalizing that marginal rate of substitution by the equilibrium here okay, and The inform is going to be always the marginal investor here After you for prices you can choose you can find a find the optimal bidding strategies There is an auction clearing condition that tells you that all the expenditure of the inform and the uninformed You just add them up waited by the fraction of inform and uninformed and that should be equal to the revenues that the government wants to Now, let me just give you intuitively how the prices in equilibrium is going to look like okay, because this is why information asymmetries matter Let me show you this picture a little bit where n i is the fraction of inform in country one that can go all the way from 0 to 1 Zero means that no one is informed One means that everybody's informed if everybody's informed you can see that there are two prices a price in the good state For a good bond or a price for a bad bond that obviously is low Now on the other extreme if n is equal to zero there is only one price Why because everybody submit bids that are unconditional to the true state and there is just one price in equilibrium That is denoted by this p bar Okay, now as there is more inform if you go that way to your right as there is more inform in this country two things happen Number one the inform going a bit more aggressively for the good bond Of course, they know that this is a good one. They want to buy it more That's going to tend to raise the price of the good one. You can see that this go up Now as that happens they got between the price of the good one and the bad one what we didn't Which means that the uninformed gonna pay more if they buy or relatively more if they're buying bad bonds That's going to take to these quarters them to be at those high prices Which is going to tend to reduce the average price in the bad state That's going to be given by the red line. This one down here is a marginal price that Informed pay in the bad state so you can see effectively that as you have more informed in the country two things happen Number one the expected price go down because the uninformed it are discouraged to participate and number two the Volatility the excellent the volatility of prices go up because now prices better react reflect The true state of the economy Okay, so again in one extreme you have there is no volatility of prices and relatively high and the other extreme when there is a Symmetric information prices are lower in average and more volatile That's why you don't like much a symmetric information in this market then we compute the value of information which is given just by the differences in the value in the value of being informed Minus uninformed as I mentioned this is driven mostly by the gap between the prices in the two states This is driven by fundamental factors. I already mentioned this at the beginning And Fundamental factors are you're more inclined or the value of information goes up when you're more exposed to a bond as an investor Or where there is a higher probability of the fault of the country But also for endogenous can factors because the winners course as I showed you before In these prices depend on the fraction of informed So if you do that if you plot the value of information, you're gonna see that has this non-monotonic shape Which effectively tells you that there are two forces that there are more informed One the prices in the good state go up They don't like that if you decide to be informed The other is because of the endogenous reaction of an informed the price in the bad state Time to go down the second for the dominates initially That's why the value of information goes up And then at some point the second force is the first force on me now If you see this picture, you can see that if the cost of information let's say is five There are two equilibrium one when there is no one informed the other when let's say that fraction I'm point six or 60% of informed investors become informed So let me just a mention in words. What happens when you have two countries and secondary markets? How that affects this value of informations? And a spillover What happens when you have two countries if you have symmetric information meaning No info no one is informed or everybody's informed That's what symmetry is here and is equal to zero one the auction is irrelevant And you have standards below that works as follows something bad happens in one country Now the background risk goes up investors tend to invest less in every in every country and that tends to decline prices Everyone so this is the standard Models of contagion in which when you have global investors, but you don't have segmentation There is always a force of diversification and you don't have reverses below now when you have a symmetric information what happens is that When one country become informed and informed tend to flee to what was called ignorance heavens when there are no informed investors That's going to lead to poor diversifications that will increase more deval the price of risk because there's gonna be endogenous segmentation and then two things can happen in the country where no one was informed one They can attract information. So there's gonna be information spilloverse to they can remain as ignorance heavens if they remain a signal and skeletons that prices on those countries gonna go up and that Generate reverses spilloverse and that's what we claim That happened for example with Germany or part of what happens with What happens when you introduce secondary markets? Why secondary markets with us the games from information? Well, because if you're an inform, you don't want to participate in the primary market You prefer to wait until the secondary market and participate in better conditions with information But now what they and what the inform can do is to buy low in primary markets They don't have to hold the risk of default because they can sell high in secondary markets That increases the gain of information for to or the gains from becoming informed and that increases the gains from information But this generates two interesting empirical options Number one is that when there is information in auctions that should show up in some way in secondary markets So there's gonna be more information in auctions when it's more predictive of what happens later on secondary markets the second one is that The gains from information that comes from the spread between primary and secondary market Withens when there is more information acquisition and we're gonna take that a little bit to the date So I have a I think only five minutes Cornelia. I'm not sure maybe a little. Yeah, okay, so let me just Mention very quickly How we apply this to the eurozone that crisis in this Crowd I don't have to tell you much how it looked like we're gonna focus on three large countries that use discriminatory price auctions, Portugal Italy and Germany But they are using many other countries in Europe The data that we're gonna use is both primary and secondary markets combined just to show or to try to assess The role of a symmetric information we want to focus on one year bonds, but we did the same for half year And we're gonna focus as I mentioned turbulent times Portugal particular in 2010 Italy a little bit better This is a quick taxon. I mean a table of some key facts from from the crisis Years were low and stable for both countries Italy and Portugal the periphery and Germany before the crisis Became high and volatile in the periphery, but not in Germany Now in terms more in terms of information itself, and this is what we bring into a table We want to show that auction informed there were options were not very informative About what's going on in secondary markets before the crisis in any country But they become informative in Italy and Portugal and not in German In terms of this spread between primary and secondary markets, which is an evidence According to the model of existence of asymmetric information or informing best of the auction markets was zero For both countries before the crisis and became positive in Italy and Portugal upon the crisis But no in Germany and then in non-resident share and this is something that That we can take as a proxy of segmentation There were relatively a the non-resident share of Italian and Portugal bonds were high before the crisis and medium for Germany that decline in the periphery and increase in the core after the crisis So you may be wondering, okay How you measure these auction informatics of the primary secondary market spread, which is effectively what Our model takes as evidence that maybe there was a change in the information regime around this time Well, the way we do it very quickly I will not go in detail on the table on pricing format is the following imagine that an auction happens on a Tuesday Okay, and happens on a Tuesday morning. It it closes at one Usually the results are immediately disclosed as you may know at 1 p.m.. On that Tuesday So what we want to do is to compute the expected price at the an auction And then we want to compute the difference between the realized price and the expected price We're gonna call that's the surprise at the auction So for example, the price is higher than expected that was a positive surprise that the auction disclosed Then we're gonna take the secondary market the same day that closes at 3 p.m And we're gonna do the same and compute the surprise in secondary markets Well, we're gonna when we show is that before the crisis Auctions were not very informative about what happened in the secondary market that day except for Italy a little bit But not for Germany and Portugal after the crisis it became quite informative in Portugal and Italy But not in Germany. We call that informative Maybe there was information content in the auction upon the crisis The second thing is the spreads as I was saying when they when secondary market prices are higher than primary market prices That's evidence of information acquisition in auctions You see that in Portugal that spread went up quite a bit during the crisis in 2010 Following Italy, but in Germany was quite flat all the way Okay, so again, this suggests that in Germany there was no much discovery about what was going in there Going on in the country as in Portugal and Italy then we calibrate this model This is the segmentation that you may know as well. The non-resident shares went out of Italy and Portugal and not in German So you don't have much time we calibrate this model Basically, the main point that we made is that Italy didn't do that bad in terms of fundamental However, they become informed only because Portugal did However, Germany was stronger. So even though you have a movement of portfolio of investors towards Germany The fundamentals in Germany may have been strong enough such that they were not enough to call This exposure to German bonds were not enough to call for you for investors to become informed of what was going on in German That's what we call ignorance. Now, just I have one more minute Let me finish with this Cornelia this isn't this the ECB monetary policy conference in the sense that This is our sovereign bonds. I've been talking about the price of bonds and but the model even though It's not in the paper can't tell us something about the interaction between monetary policy and fiscal policy here Through inform and incentives to acquire information in sovereign bond markets So for example, if we assume we have assumed so far that the alternative to bonds is risk-free storage Imagine monetary policy conventional local or foreign in the case of a small country reduces risk-free rates Now what that happens is that that's going to increase bond prices This is the standard effect that we would expect But however, if investors are risk-averse enough greater than log, which is the case that we typically Consider that really reduction in interest rate make them effectively poorer and increases the incentives to acquire information about Government bonds, okay If there is Paul for information acquisition or there are a symmetric information going on bonds That may end up increase reducing the bond prices and increasing the volatility Even though the standard effect says that bond prices should increase now How about central banks and conventional policies which consist on buying government bonds? I read the central bank buys government bonds directly and Switches for private assets in the market. Well in previous work with Gordon I showed that swapping bonds for private assets relaxes information pressures About those assets about those private assets in financial markets And then may reduce the probability of crisis in financial markets This paper talks on the other side and says that buying bonds directly may relax as the Information pressures for investors about the country that's going to enter into the convenience yellow into the prices and the volatility of bonds So monetary policy can have an effect on the price level and volatility of our bonds through information regimes in primary markets So, let me conclude here. We basically propose a new multi-country model of both primary and secondary markets for sovereign bonds with information acquisition and and and the potential contagion and these basically Races Red lies, I would say of importance of auction designs for the interaction between monetary and fiscal policy and potentially contagion across countries Thank you Thanks Guillermo and I would hand over directly to Federica for the presentation for the discussion and Please not more than 10 minutes in order to have some minutes for reply in the end And again, everyone who has a question can already start putting it into the Q&A chat. Thanks So first of all, thank you very much for giving you the opportunity to discuss this paper. I didn't know anything about auction I learned a lot And also you will see the end of Guillermo is almost like the starting of my discussion So it seems that we coordinate despite we didn't So there are some facts and I'm going to be very short on the introduction because I think like Guillermo Did a wonderful job and for sure a better job that I would do to describe this paper So there are some facts that this paper want to explain One is for example, the fact that if you look at the years of the return on German, Portuguese and Italian bonds They were very similar Before the debt crisis or financial crisis and very different after There are many papers they want to explain that but I mean the dig down a little bit in the data And also they show that there were similar buyers Precrisis, so if you look at the buyers that they were pretty similar in the primary market And instead there was a little bit of difference after the crisis So there was a lot of domestic buyers in for the Italian and Portuguese bond Why is that for the German body didn't happen? And also like what is important to show is like there was this spread between the primary and secondary market Returns that was positive after the crisis but not before right So the mechanism in the paper what is it's like, I mean, I'm simplifying a lot here This is like it is very complicated the math and auction theory But is the idea that you have inform and not inform investors I mean from investor can like learn I mean can They gain right If the market a little bit time to turn violent Otherwise, there is not much to gain. So in normal times, there is no incentive to acquire information Right, this is like is not so important In difficult times is the start all inform investor participate to the auction or to the auction where there are some turbulence So like the Italian or Portuguese one so in the difficult times they show that if you have these If the primary auction are set in a certain way or a design in a certain way, then you have a market segmentation What is my discussion about so the paper is super polished by reading around the thanking So on and so forth it seemed to me that at least it's like a second first or second round of revise the research mission Because I mean otherwise you don't think that an editor. So so What I mean is that I think I'm going to go a little bit to I Think it's useless for me to say maybe you should do these or this because I'm pretty sure that the animal We do what the referees are asking to him to do it So and also I can discuss about at the beginning I want to take this part of discussing about possible explanation for resident versus not resident but ownership But we're not going to go there. So there are the explanation where you're gonna have Different after a crisis bond ownership, but whatever it's like, I think it's not the point of this discussion I think this is a policy discussion Right and they said that I want to push Guillermo to do something that one of my colleague did da in Oxford so this guy that is named Paul clamper clamperer, sorry and I think is like on the micro side is one of the Leader in this auction theory. So I'm just using a conversation that I had with him like Few months ago and trying to push Guillermo and they called her to do something more and also do the ACB to do something more So use their framework, right to analyze past and current policy. They did it, but maybe we can do more so one of the solution of the ECB to the spread problem for Italian Portuguese bond was to buy Bons in the secondary market. Let me be clear. I think there was no Buying and selling the primary market. Now, maybe this policy is good in the framework But it's also you need to move a lot of quantity and I think it become very complicated soon, right? so The point is that could it be could the ECB do better in this framework and yeah, what I'm using is Even if I don't know anything about auction, there's a new auction decided is called a mixed product auction So let me see the problem as Paul told me, right? So it's like Again, this discussion come from this conversation more than of my deep knowledge on auction theory But what happened is that after not the rock a bank run the Bank of England wanted to allocate money to the banks To keep the banking going because they were a problem big problem of liquidity and what was the main problem there that? Banks didn't want to reveal the fundamentals by entering in one market. So the point is that They want to give you some collateral and having some interest rate and some banks were like, okay If I enter this market, maybe I signal right to the market and I'm a bad bank And the same problem is also that they weren't didn't have enough information So some of the banks would really be outside the market and have low liquidity than entering the market and have more liquidity I'm pretty sure that the problem is not exactly one-to-one with the primary market in the in the government However, I think is like there is some aspect of the information that is pretty similar So I will simplify the model the problem even more using the word of Paul Clamper so not my words So assume that you like orange and apple, right? But you like orange more than apple you would like to Tweet your orange. However, it is a price for which you would buy apple ridden than oranges, right or something Or a mix of the two Now if the government runs separate auction for apple and orange Then you have different you have some problem from one side Buyers do not know which auction to enter Because they don't know which auction is going to offer to them a better deal Oh, we hope we which auction like they don't want to enter on the other side. What about the seller? They don't know at the beginning How many orange and apple to sell and what is the problem there is that Maybe they would sell more orange or less apple or something like that in order to know something about the price and quantity So the solution of Paul it was not to take from the shelf an auction that really exists But it was I read there's something I think like Gen I mean is like he's a very smart guy But he's a solution it was like let's create a new auction and use this and design a new auction That could solve this problem in the primary market not in the secondary in some case So let's sell all the fruits together in a single auction and let's take into account the buyers and sellers preference So going back to the previous problem and what what happened there is that Melvin King at the time apparently he came to Oxford secretly He went to the office of Paul and they speak quite a lot about what to do and what was the problem And then he designed his new auction that is currently used by the Bank of England to allocate liquidated in the market That a pint is very efficient informative and then I mean after that will publish a lot of papers about this auction So let me give the simplest version what Paul asked which bank is to submit To substitute good was a three months loan against a strong collateral or three months loan against a weak collateral And then he uses information to infer what we are the preference of the players and also to allocate the goods Now what we can learn from the paper today that there is apparently this deep important problem about information when different government goes to the To do their primary market and the sale bonds, especially if they do in the same moment Maybe not in the same day, but I mean apparently there is this problem of information And this problem can lead an amplified that crisis through the fight that some inform one inform Investor do not enter in some market So maybe instead of having this very complicated operation where we're moving billion of dollars So why don't we go for something that is simple that is the ECB can coordinate these primary bidding problem And maybe I mean, I'm not sure that this is like the mixed product is the best idea but to run something that is very much similar which The ECB will collect information in the primary market for the players And we'll also collect the information from the sellers and try to allocate the product in a better way And if I don't know this is does this a question of Guillermo I'm not sure but it seemed to me that this is I maybe will Improve the equilibrium and the reason why the ECB is there is also like to coordinate, right? I mean, yes at the beginning was the price ability, but now we can agree that there are many things that ECB is doing that Is outside also the price ability mandate So but this could be like could could could lead to some coordination Among the players and I could allocate or solve part of this information problem that is that And of my discussion of it was time on time So Thank you very much Federica very interesting discussion also I mean only a very last point that we just say that so the ECB doesn't tend to get involved in Debt auctions because we have a monetary financing prohibition So that's something that we try to stay very clear of but I mean, I guess you are also thinking about the government's and I mean, I had actually similar questions to to what you said Federica so you focused on a special type of auction Guillermo and I was wondering can there be better types of auctions where this problem does not appear and then My other question would have been Yes, central banks. I think you said that central banks could help because Because they could buy bonds and alleviate the problem But obviously central banks around the world currently are not in a position or that that's not what they intend to do we see that there are sometimes exceptions, but Yeah, what what could be? Yeah, a proper monetary policy response in case We are in in a situation like now is there is there anything but with that I don't see any other questions in the chat. So maybe you could have a go at answering. Thank you Thank you for first off. Thanks a lot Federica. It's something you gave me a lot of food for thought I don't know. You mentioned many possible projects here, which are very interesting I haven't thought about having different products in Together in an auction in your example of the apples and oranges That's a case in which you're trying to elicit the preferences of investors here with taking the government bonds is a common value object In which there are no investors preferences as the value of the object, but it's interesting if you think on bonds Like the Euro bond how to auction that you have a combination of different Characteristics that may be something interesting. You also mentioned about in our model the government doesn't know about its own State and doesn't care really what in our model the government is like a robot But doesn't care about learning about that state and that's something that you refer to as well so in general of How much or how the government can do better and this is going a little bit to also Cornelia's final question There are another Protocol which was the one Offered by Friedman, which is uniform price protocol I would say that 60% of the countries use the discriminatory price protocol 40% the uniform price protocol We're having currently a project that tries to understand how that works also what are the implications with information acquisition Something that so far we were finding is that the uniform price protocol is Closer to secondary market So it takes to this courage information acquisition and the reason is that when you beat a high price You end up buying at the marginal price So you don't worry that much about buying too much at the very high price So that part relaxes the incentives a And we're analyzing what are the information regions from the information implications for that Now Something that I mentioned the at the end which is mostly and I understand that the central bank for obvious reasons Doesn't want to get involved in primary Primary markets or buy bonds directly from the government So without taking it that far basically what we're kind of suggesting here or raising alarm if you want is that The way monetary policies conducted has implication through auction design on fiscal policies Because it's going to affect the incentives of investors to acquire information about the fiscal characteristics of the government now whether a central bank can a Actively try to curve that a or not. That's an important question and that that That's more mostly a political question And also a question about independence of the central bank But it's important to raise the flag that it may have this A Non-none expected consequences In the way monetary policy affects fiscal policy through information regimes and again It may be something else to to think in terms of the convenience here that Stein was talking about How information enters into into those calculations as well and then how that affects the the financing cost of A but a lot of things and a lot of great ideas Federico Federica. Thank you Yeah, so this would conclude our session. Thanks very much to Guillermo for a very interesting and clear presentation I think and Federica also for your insightful comments. So we can close the first day here Thanks very much to everyone. I think yeah, we learned a lot today So I look forward to day two tomorrow afternoon. Thanks very much