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Over- and underbidding in central bank open market operations conducted as fixed rate tender

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  • Bindseil, Ulrich
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    Abstract

    Open 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 Info

    Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 03-2004.

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    Date of creation: 2004
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    Handle: RePEc:zbw:zeiwps:b032004

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    Related research

    Keywords: open market operations; tender procedures; central bank liquidity management;

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    Cited by:
    1. 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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