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Bidding behaviour in the ECB's main refinancing operations during the financial crisis

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Author Info
Jens Eisenschmidt () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Astrid Hirsch () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Tobias Linzert () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)

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Abstract

Liquidity provision through its repo auctions has been one of the main instruments of the European Central Bank (ECB) to address the recent tensions in financial markets since summer 2007. In this paper, we analyse banks’ bidding behaviour in the ECB’s main refinancing operations (MROs) during the ongoing turmoil in money and financial markets. We employ a unique data set comprising repo auctions from March 2004 to October 2008 with bidding data from 877 counterparties. We find that increased bid rates during the turmoil can be explained by, inter alia, the increased individual refinancing motive, the increased attractiveness of the ECB’s tender operations due to its collateral framework and banks’ bidding more aggressively, i.e. at higher rates to avoid being rationed at the marginal rate in times of increased liquidity uncertainty. JEL Classification: E52, D44, C33, C34.

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Paper provided by European Central Bank in its series Working Paper Series with number 1052.

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Length: 38 pages
Date of creation: May 2009
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Handle: RePEc:ecb:ecbwps:20091052

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Related research
Keywords: Central Bank Auctions; Financial Market Turmoil; Panel Sample Selection Model; Bidding Behavior; Monetary Policy Instruments.;

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References listed on IDEAS
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  1. Beyer, Andreas & Gaspar, Vítor & Gerberding, Christina & Issing, Otmar, 2009. "Opting out of the great inflation: German monetary policy after the breakdown of Bretton Woods," Discussion Paper Series 1: Economic Studies 2009,12, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  2. Mathias Drehmann & Kleopatra Nikolaou, 2009. "Funding Liquidity Risk: Definition and Measurement," Working Paper Series 1024, European Central Bank. [Downloadable!]
  3. Stephan Fahr & Fang Yao, 2009. "When does Lumpy Factor Adjustment Matter for Aggregate Dynamics?," Working Paper Series 1016, European Central Bank. [Downloadable!]
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  5. John Geweke & Gianni Amisano, 2008. "Optimal Prediction Pools," Working Paper Series 22-08, Rimini Centre for Economic Analysis, revised Jan 2008. [Downloadable!]
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  6. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2009. "Understanding sectoral differences in downward real wage rigidity - workforce composition, institutions, technology and competition," Working Paper Series 1006, European Central Bank. [Downloadable!]
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  7. Luca Benati, 2009. "Long Run Evidence on Money Growth and Inflation," Working Paper Series 1027, European Central Bank. [Downloadable!]
  8. Roland Beck & Annette Kamps, 2009. "Petrodollars and Imports of Oil Exporting Countries," Working Paper Series 1012, European Central Bank. [Downloadable!]
  9. Kleopatra Nikolaou, 2009. "Liquidity (risk) concepts - definitions and interactions," Working Paper Series 1008, European Central Bank. [Downloadable!]
  10. Geert Bekaert & Marie Hoerova & Martin Scheicher, 2009. "What Do Asset Prices Have to Say About Risk Appetite and Uncertainty?," Working Paper Series 1037, European Central Bank. [Downloadable!]
  11. Kjell G. Nyborg, 2004. "Multiple Unit Auctions and Short Squeezes," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(2), pages 545-580. [Downloadable!] (restricted)
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  12. Sebastian Hauptmeier & Ferdinand Mittermaier & Johannes Rincke, 2009. "Fiscal competition over taxes and public inputs - theory and evidence," Working Paper Series 1033, European Central Bank. [Downloadable!]
    Other versions:
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