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Financing in the Eurosystem: Fixed Versus Variable Rate Tenders


  • Margarida Catalão-Lopes


In a three-stage game in which banks can obtain liquidity through open market operations, interbank transactions or standing facilities we compare the equilibrium outcomes of fixed and variable rate tenders in the primary market. We focus on bidding behavior, induced allotment ratios, functioning of the secondary market and resorting to standing facilities, under several scenarios, among which collateral shortage and credit rationing. It is shown that overbidding is inherent to the fixed rate auction, but can be very mitigated under a variable rate procedure. Due to the existence of a finite number of equilibria, variable rate tenders allow keeping the informational content of quantity bids, as opposed to fixed rate tenders.

Suggested Citation

  • Margarida Catalão-Lopes, 2001. "Financing in the Eurosystem: Fixed Versus Variable Rate Tenders," Working Papers w200105, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w200105

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    References listed on IDEAS

    1. Linnemann, Ludger & Schabert, Andreas, 2004. "Can fiscal spending stimulate private consumption?," Economics Letters, Elsevier, vol. 82(2), pages 173-179, February.
    2. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    3. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
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    Cited by:

    1. 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.
    2. Nuno Cassola & Claudio Morana, 2006. "Volatility of interest rates in the euro area: Evidence from high frequency data," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 513-528.
    3. 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.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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