Declining Valuations and Equilibrium Bidding in Central Bank Refinancing Operations
University of Zurich - Department of Economics
European Central Bank (ECB)
Banque de France; European Central Bank (ECB)
July 16, 2007
ECB Working Paper No. 668
Swiss Finance Institute Research Paper No. 07-22
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.
Number of Pages in PDF File: 33
Keywords: Open market operations, uniform price auction, discriminatory, Eurosystem, discriminatory auction, bid shading, collateral
JEL Classification: D44, E52working papers series
Date posted: August 22, 2006
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