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Coarse pricing in QE auctions

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  • Tsujimoto, Yusuke

Abstract

This paper documents coarse pricing by the U.S. Federal Reserve’s counterparty intermediaries in quantitative easing operations. Although the Fed explicitly sets a tick size of 1/256th in its reverse auctions to purchase Treasury securities, offer prices of primary dealers exhibit strong clustering on coarser grids. Top dealers price more finely, and coarse pricing is particularly prevalent when the security characteristics indicate greater difficulty in precise pricing. I argue that this coarse pricing results from information costs associated with increasing pricing precision. The results also point to a novel role of tick size in affecting dealer competition in central bank operations.

Suggested Citation

  • Tsujimoto, Yusuke, 2025. "Coarse pricing in QE auctions," Journal of Financial Markets, Elsevier, vol. 73(C).
  • Handle: RePEc:eee:finmar:v:73:y:2025:i:c:s1386418124000776
    DOI: 10.1016/j.finmar.2024.100959
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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G4 - Financial Economics - - Behavioral Finance
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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