Over- and underbidding in central bank open market operations conducted as fixed rate tender
AbstractOpen 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. Many central banks apply so-called “fixed rate tender” auctions in their open market operations. This note presents, on the basis of a survey of central bank experience, a model of bidding in such tenders. In their conduct of fixed rate tenders, many central banks faced specifically an “under”- and an “overbidding” problem. These phenomena are revisited in the light of the proposed model and the more general question of the optimal tender procedure and allotment policy of central banks is addressed. --
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Bibliographic InfoPaper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 03-2004.
Date of creation: 2004
Date of revision:
open market operations; tender procedures; central bank liquidity management;
Find related papers by JEL classification:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Thomas J. Jordan & Peter Kugler, 2004. "Implementing Swiss Monetary Policy: Steering the 3M-Libor with Repo Transactions," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 381-393, September.
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