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Structural econometric approach to bidding in the main refinancing operations of the Eurosystem

Author

Listed:
  • Cassola, Nuno
  • Ewerhart, Christian
  • Morana, Claudio

Abstract

This paper contributes to the existing literature on central bank repoauctions. It is based on a structural econometric approach, whereby the primitives of bidding behaviour (individual bid schedules and bid-shading components) are directly estimated. With the estimated parameters we calibrate a theoretical model in order to illustrate some comparative static results. Overall the results suggest that strategic and optimal behaviour is prevalent in ECB tenders. We find evidence of a statistically significant bid-shading component, even though the number of bidders is very large. Bid-shading increases with liquidity uncertainty and decreases with the number of participants. JEL Classification: G21, G12, D44, E43, E50

Suggested Citation

  • Cassola, Nuno & Ewerhart, Christian & Morana, Claudio, 2007. "Structural econometric approach to bidding in the main refinancing operations of the Eurosystem," Working Paper Series 793, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2007793
    Note: 334845
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    References listed on IDEAS

    as
    1. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2010. "Declining valuations and equilibrium bidding in central bank refinancing operations," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 30-43, January.
    2. Athey, Susan & Haile, Philip A., 2007. "Nonparametric Approaches to Auctions," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 60, Elsevier.
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    4. Bindseil, Ulrich & Nyborg, Kjell G. & Strebulaev, Ilya A., 2002. "Bidding and performance in repo auctions: evidence from ECB open market operations," Working Paper Series 157, European Central Bank.
    5. Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions," Cowles Foundation Discussion Papers 1445, Cowles Foundation for Research in Economics, Yale University.
    6. Matt Shum & Phil Haile & Han Hong, 2003. "Nonparametric Tests for Common Values in First-Price Auctions," Economics Working Paper Archive 501, The Johns Hopkins University,Department of Economics.
    7. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643.
    8. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    9. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689.
    10. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    11. Giuseppe Bruno & Ernesto Maurizio Ordine & Antonio Scalia, 2005. "Banks� participation in the Eurosystem auctions and money market integration," Temi di discussione (Economic working papers) 562, Bank of Italy, Economic Research and International Relations Area.
    12. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
    13. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-764.
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    Cited by:

    1. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2010. "Declining valuations and equilibrium bidding in central bank refinancing operations," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 30-43, January.

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    More about this item

    Keywords

    monetary policy implementation; primary money; repo auctions;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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