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Equilibrium bidding in the Eurosystem's open market operations

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  • Bindseil, Ulrich
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    Abstract

    Open market operations play a key role in allocating central bank funds to the banking system and thereby to steer short-term interest rates in line with the stance of monetary policy. This note presents some elements of a theory of bidding in central bank tenders in a framework such as the one of the Eurosystem. The ECB has so far used fixed rate tenders and a variant of the variable rate tender, which may be similar to a fixed rate tender depending on market circumstances. In doing so, it faced consecutively an 'under-' and an 'overbidding' issue. The tools developed in this note to understand the bidding behavior of banks in these operations allow revisiting these phenomena and the more general question of the optimal tender procedure and allotment policy. JEL Classification: D84, E43, E52

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0137.

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    Date of creation: Apr 2002
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    Handle: RePEc:ecb:ecbwps:20020137

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    Keywords: central bank liquidity management; Open market operations; tender procedures;

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    References

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    1. Juan Ayuso & Rafael Repullo, 2000. "A Model of the Open Market Operations of the European Central Bank," Banco de Espa�a Working Papers 0016, Banco de Espa�a.
    2. Ayuso, Juan & Repullo, Rafael, 2001. "Why did the banks overbid? An empirical model of the fixed rate tenders of the European Central Bank," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 857-870, November.
    3. repec:fth:baesse:0016 is not listed on IDEAS
    4. Leonardo Bartolini & Giuseppe Bertoli & Alessandro Prati, 2000. "Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention," Econometric Society World Congress 2000 Contributed Papers 0123, Econometric Society.
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    Cited by:
    1. Ulrike Neyer & Jürgen Wiemers, 2004. "The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 395-428, September.
    2. Pérez Quirós, Gabriel & Sicilia, Jorge, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Working Paper Series 0192, European Central Bank.
    3. Välimäki , Tuomas, 2006. "Why the marginal MRO rate exceeds the ECB policy rate?," Research Discussion Papers 20/2006, Bank of Finland.
    4. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer, vol. 21(2), pages 241-261, June.
    5. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks," Staff Reports 165, Federal Reserve Bank of New York.
    6. Välimäki, Tuomas, 2002. "Variable rate liquidity tenders," Research Discussion Papers 24/2002, Bank of Finland.
    7. tuomas välimäki, 2004. "Variable rate liquidity tenders," Macroeconomics 0405010, EconWPA.
    8. Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2009. "The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 415-431, July.
    9. Livio Stracca & Clara Martin Moss & Livio Stracca, 2004. "Demand and supply in the ECB's main refinancing operations," Money Macro and Finance (MMF) Research Group Conference 2003 94, Money Macro and Finance Research Group.
    10. Moschitz, Julius, 2004. "The determinants of the overnight interest rate in the euro area," Working Paper Series 0393, European Central Bank.
    11. Stracca, Livio & Ejerskov, Steen & Martin Moss, Clara, 2003. "How does the ECB allot liquidity in its weekly main refinancing operations? A look at the empirical evidence," Working Paper Series 0244, European Central Bank.
    12. Würtz, Flemming Reinhardt, 2003. "A comprehensive model on the euro overnight rate," Working Paper Series 0207, European Central Bank.

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