How (Not) to Sell Money
AbstractA repo auction is a multi-unit common value auction in which bidders submit demand functions. Such auctions are used by the Bundesbank as well as the European Central Bank as the principal instrument for implementing monetary policy. In this paper, we analyze a repo auction with a uniform pricing rule. We show that under a uniform pricing rule, the usual intuition about the value of exclusive information can be violated, and implies free riding by uninformed bidders on the information of the informed bidders, lowering payoff of the latter. Further, free riding can distort the information content of auction prices, in turn distorting the policy signals, hindering the conduct of monetary policy. The results agree with evidence from repo auctions, and clarifies the reason behind the Bundesbank’s decision to switch away from the uniform price format. Our results also shed some light on the rationale behind the contrasting switch to the uniform price format in US Treasury auctions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0520.
Date of creation: Nov 2005
Date of revision:
Contact details of provider:
Postal: Malet Street, London WC1E 7HX, UK
Phone: 44-20- 76316429
Fax: 44-20- 76316416
Web page: http://www.ems.bbk.ac.uk/
Other versions of this item:JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-MAC-2005-12-01 (Macroeconomics)
- NEP-MON-2005-12-01 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Klemperer, Paul, 1999.
" Auction Theory: A Guide to the Literature,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 13(3), pages 227-86, July.
- Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
- Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
- Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
- Nautz, Dieter, 1997. "How Auctions Reveal Information: A Case Study on German REPO Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 17-25, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.