Bidding Behaviour in the ECB's Main Refinancing Operations during the Financial Crisis

38 Pages Posted: 6 May 2009

See all articles by Jens Eisenschmidt

Jens Eisenschmidt

European Central Bank (ECB)

Astrid Hirsch

European Central Bank (ECB)

Tobias Linzert

European Central Bank (ECB); IZA Institute of Labor Economics

Date Written: May 6, 2009

Abstract

Liquidity provision through its repo auctions has been one of the main instruments of the European Central Bank (ECB) to address the recent tensions in financial markets since summer 2007. In this paper, we analyse banks' bidding behaviour in the ECB's main refinancing operations (MROs) during the ongoing turmoil in money and financial markets. We employ a unique data set comprising repo auctions from March 2004 to October 2008 with bidding data from 877 counterparties. We find that increased bid rates during the turmoil can be explained by, inter alia, the increased individual refinancing motive, the increased attractiveness of the ECB's tender operations due to its collateral framework and banks' bidding more aggressively, i.e. at higher rates to avoid being rationed at the marginal rate in times of increased liquidity uncertainty.

Keywords: Central Bank Auctions, Financial Market Turmoil, Panel Sample Selection Model, Bidding Behavior, Monetary Policy Instruments

JEL Classification: E52, D44, C33, C34

Suggested Citation

Eisenschmidt, Jens and Hirsch, Astrid and Linzert, Tobias, Bidding Behaviour in the ECB's Main Refinancing Operations during the Financial Crisis (May 6, 2009). ECB Working Paper No. 1052, Available at SSRN: https://ssrn.com/abstract=1396702

Jens Eisenschmidt (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Astrid Hirsch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tobias Linzert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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