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Declining Valuations And Equilibrium Bidding In Central Bank Refinancing Operations

  • Christian Ewerhart

    (University of Zurich)

  • Nuno Cassola

    (European Central Bank)

  • Natacha Valla

    (Banque de France)

Among the most puzzling observations for the euro money market are the bid shading in the weekly refinancing operations and the development of interest rate spreads. To explain these observations, we consider a standard divisible-good auction à la Klemperer and Meyer (1989) with uniform or discriminatory pricing, and place it in the context of a secondary market for interbank credit. The analysis links the observations for the euro area to the endogenous choice of collateral in credit transactions. We also discuss the Eurosystem’s apparent preference for the discriminatory pricing rule.

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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-22.

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Length: 30 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:chf:rpseri:rp0722
Contact details of provider: Web page: http://www.SwissFinanceInstitute.ch

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