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Declining valuations and equilibrium bidding in central bank refinancing operations

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Author Info
Christian Ewerhart () (Institute for Empirical Research in Economics (IEW), Winterthurerstrasse 30, CH-8006 Zurich, Switzerland.)
Nuno Cassola () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Natacha Valla () (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.)

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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 668.

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Length: 51 pages
Date of creation: Aug 2006
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Handle: RePEc:ecb:ecbwps:20060668

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

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Full references

Cited by:
(explanations, 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.)

  1. Nuno Cassola & Christian Ewerhart & Claudio Morana, 2007. "Structural econometric approach to bidding in the main refinancing operations of the Eurosystem," Working Paper Series 793, European Central Bank. [Downloadable!]
  2. Nuno Cassola & Christian Ewerhart & Claudio Morana, 2006. "Structural Econometric Approach to Bidding in the Main refinancing Operations of the Eurosystem," ICER Working Papers 26-2006, ICER - International Centre for Economic Research. [Downloadable!]
  3. Kleopatra Nikolaou, 2009. "Liquidity (risk) concepts - definitions and interactions," Working Paper Series 1008, European Central Bank. [Downloadable!]
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