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European Central Bank Operations: Experimental Investigation of Variable Rate Tenders

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  • Ehrhart, Karl-Martin

    () (Universitaet Karlsruhe)

Abstract

In an experimental study auction procedures of variable rate tenders, which are prevalent in practice, the discriminatory American auction and the competitive Dutch auction, are investigated on a repeated basis. At the center of this study stands the comparison of the two auction formats with respect to true bidding, efficiency, seller's revenue and bidders' payoffs. We observe bid shading in both auction formats and a higher level of underbidding in the American auctions than in the Dutch auctions. Furthermore, subjects understate their willingness to pay more and more in the course of time in the American auction. As a result seller's revenue decreases and bidders' payoffs increase. However, the experimental results neither favor the American nor the Dutch auction format, in terms of revenue. Moreover, no differences are found with respect to efficiency. The outcomes of both auction formats are inefficient. However, the level of efficiency increases over time in the auctions.

Suggested Citation

  • Ehrhart, Karl-Martin, 2001. "European Central Bank Operations: Experimental Investigation of Variable Rate Tenders," Sonderforschungsbereich 504 Publications 01-37, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:01-37
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    Cited by:

    1. Vogel, Edgar, 2014. "MRO bidding in the presence of LTROs: an empirical analysis of the pre-crisis period," Working Paper Series 1753, European Central Bank.
    2. Hartmann, Philipp & Smets, Frank, 2018. "The first twenty years of the European Central Bank: monetary policy," Working Paper Series 2219, European Central Bank.
    3. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Discussion Paper 2010-63, Tilburg University, Center for Economic Research.
    4. repec:bla:wireae:v:7:y:2018:i:6:n:e303 is not listed on IDEAS
    5. Sébastien Kraenzlin & Martin Schlegel, 2012. "Demand for Reserves and the Central Bank's Management of Interest Rates," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(IV), pages 531-555, December.
    6. Ehrhart, Karl-Martin & Ott, Marion, 2003. "Auctions, Information, and New Technologies," Sonderforschungsbereich 504 Publications 04-05, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.

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