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Declining valuations and equilibrium bidding in central bank refinancing operations

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  • Ewerhart, Christian
  • Cassola, Nuno
  • Valla, Natacha

Abstract

It is argued that bidders in liquidity-providing central bank operations should typically possess declining marginal valuations. Based on this hypothesis, we construct an equilibrium in central bank refinancing operations organised as variable rate tenders. In the case of the discriminatory pricing rule, bid shading does not disappear in large populations. The predictions of the model are shown to be consistent with the data for the euro area. JEL Classification: D44, E52

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Paper provided by European Central Bank in its series Working Paper Series with number 0668.

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Date of creation: Aug 2006
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Handle: RePEc:ecb:ecbwps:20060668

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Keywords: discriminatory auction; Eurosystem; Open market operations; uniform price auction;

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