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Bidder behaviour in repo auctions without minimum bid rate: evidence from the Bundesbank

  • Tobias Linzert
  • Dieter Nautz
  • Jorg Breitung

A distinguishing feature of the ECB's monetary policy setup is the preannouncement of a minimum bid rate in its weekly repo auctions. However, whenever interest rates are expected to decline, the minimum bid rate is viewed as too high and banks refrain from bidding, severely impeding the ECB's money market management. To shed more light on banks' underbidding, we perform a panel analysis of the bidder behavior in the repo auctions of the Bundesbank where no minimum bid rate was set. Our results indicate that neither bank's participation nor the submitted bid amount is significantly affected by an expected rate cut. This suggests that abandoning the minimum bid rate might increase the efficiency of the ECB's money market management.

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 55.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:55
Contact details of provider: Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April.
  2. Ayuso, Juan & Repullo, Rafael, 2001. "Why did the banks overbid? An empirical model of the fixed rate tenders of the European Central Bank," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 857-870, November.
  3. Nautz, Dieter & Oechssler, Jörg, 1999. "The repo auctions of the European Central Bank and the vanishing quota puzzle," SFB 373 Discussion Papers 1999,79, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  4. Nyborg, Kjell G. & Strebulaev, Ilya A., 2001. "Collateral and short squeezing of liquidity in fixed rate tenders," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 769-792, November.
  5. Nautz, Dieter, 1998. "Banks' demand for reserves when future monetary policy is uncertain," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 161-183, June.
  6. Breitung, Jorg & Nautz, Dieter, 2001. "The empirical performance of the ECB's repo auctions: evidence from aggregated and individual bidding data," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 839-856, November.
  7. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
  8. Hoidal Bjonnes, Geir, 2001. "Winner's Curse in Discriminatory Price Auctions: Evidence from the Norwegian Treasury Bill Auctions," SIFR Research Report Series 3, Institute for Financial Research.
  9. Nautz, Dieter, 1997. "How Auctions Reveal Information: A Case Study on German REPO Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 17-25, February.
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