Why the effective price for money exceeds the policy rate in the ECB tenders?
AbstractThe tender spread, i.e. the difference between the effective price for money in the ECB’s main refinancing operations and the prevailing policy rate, is one of the main determinants behind the evolution of the EONIA with respect to the ECB’s operational target. This study assesses the reasons for which the average tender spread did not reduce after the banks’ demand for liquidity was isolated from their interest rate expectations in March 2004. The paper offers two potential explanations for the unexpected behavior. First, following the increased precision in the ECB’s liquidity provision after the end-of- period fine tuning operations were added to the regularly applied tools, even a small bias in the liquidity supply could have resulted in a strictly positive tender spread. Second, banks’ uncertainty over their individual allotments in the tender operations may have led to a strictly positive tender spread. Furthermore, the significant growth in the refinancing volumes may have intensified the allotment uncertainty. JEL Classification: D44, E58
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Date of creation: Dec 2008
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Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-CBA-2009-01-03 (Central Banking)
- NEP-EEC-2009-01-03 (European Economics)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-MON-2009-01-03 (Monetary Economics)
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- Pérez-Quirós, Gabriel & Rodriguez Mendizabal, Hugo, 2010.
"Asymmetric Standing Facilities: An Unexploited Monetary Policy Tool,"
CEPR Discussion Papers
7789, C.E.P.R. Discussion Papers.
- Gabriel P�rez Quir�s & Hugo Rodr�guez Mendiz�bal, 2012. "Asymmetric Standing Facilities: An Unexploited Monetary Policy Tool," IMF Economic Review, Palgrave Macmillan, vol. 60(1), pages 43-74, April.
- Gabriel Pérez Quirés & Hugo Rodréguez Mendizébal, 2009. "Asymmetric Standing Facilities: An Unexploited Monetary Policy Tool," Working Papers 414, Barcelona Graduate School of Economics.
- Gabriel Perez-Quiros & Hugo Rodríguez Mendizábal, 2010. "Asymmetric standing facilities: an unexploited monetary policy tool," Banco de Espaï¿½a Working Papers 1004, Banco de Espa�a.
- Gabriel Pérez Quirós & Hugo Rodríguez Mendizábal, 2009. "Asymmetric Standing Facilities: An Unexploited Monetary Policy Tool," UFAE and IAE Working Papers 795.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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