## Sovereign Debt Auctions with Strategic Interactions

_IMF Working Papers, July 25, 2025_

## Source details

**Canonical URL:** [Sovereign Debt Auctions with Strategic Interactions](https://www.imf.org/en/publications/wp/issues/2025/07/25/sovereign-debt-auctions-with-strategic-interactions-568668)

## Other formats

- [Markdown version](/en/publications/wp/issues/2025/07/25/sovereign-debt-auctions-with-strategic-interactions-568668/index.md)
- [Structured JSON version](/en/publications/wp/issues/2025/07/25/sovereign-debt-auctions-with-strategic-interactions-568668/index.json)
- [Bundle manifest](/en/publications/wp/issues/2025/07/25/sovereign-debt-auctions-with-strategic-interactions-568668/bundle-manifest.json)

## Bibliographic details
- Authors: Ricardo Alves Monteiro, Stelios Fourakis
- Published: July 25, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229018142.001

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### Overview
- Builds a model of sovereign borrowing and default, disciplined with proprietary bid level data.
- Studies impact of alternative sovereign debt issuance formats on borrowing decisions, cost of debt, and welfare.
- Focuses on the two most common auction types: uniform price auctions and discriminatory price auctions.
- Calibrated to the Portuguese economy.

### Methodology and Calibration
- Model incorporates strategic interactions among bidders using proprietary bid level data.
- Calibration target: Portuguese economy (no additional calibration details provided on the page).
- Contrasts outcomes under uniform protocol versus discriminatory protocol across single-auction and repeated-auction settings.

### Key Findings
- Discriminatory auctions generate spreads that provide a better fit to the data.
- Counterfactual results:
  - Switching to a uniform protocol constitutes a Pareto improvement.
  - The welfare difference is highest during crises: 0.6 percent of permanent consumption.
- Dynamic effects are crucial:
  - In a single auction setting, a risk averse government prefers the discriminatory protocol.
  - With repeated auctions, discriminatory protocol properties incentivize over-borrowing.
  - The anticipatory effect of discriminatory auctions on prices makes the uniform protocol a better option in dynamic/repeated settings.

### Policy Implications and Interpretations
- Auction design affects sovereign borrowing incentives, cost of debt, and welfare—choice of protocol matters quantitatively.
- Static (single-auction) preferences for discriminatory auctions by a risk averse government can reverse when accounting for repeated interaction and dynamic pricing effects.
- Implementing a uniform auction protocol may yield Pareto improvements and better welfare outcomes during crises due to reduced anticipatory over-borrowing incentives under discriminatory protocols.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2025/07/25/sovereign-debt-auctions-with-strategic-interactions-568668_