Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations

54 Pages Posted: 26 Oct 2010

See all articles by Christian Ewerhart

Christian Ewerhart

University of Zurich, Department of Economics

Nuno Cassola

University of Milan Bicocca - CefES; University of Lisbon - CEMAPRE

Natacha Valla

European Union - European Investment Bank; European Central Bank (ECB); Banque de France

Date Written: August 1, 2006

Abstract

It is argued that bidders in liquidity-providing central bank operations should typically possess declining marginal valuations. Based on this hypothesis, we construct equilibrium in central bank refinancing operations organised as variable rate tenders. In the case of the discriminatory pricing rule, bid shading does not disappear in large populations. The predictions of the model are shown to be consistent with the data for the euro area.

Keywords: Open market Operations, Uniform Price Auction, Discriminatory Auction, Eurosystem

JEL Classification: D44, E52.

Suggested Citation

Ewerhart, Christian and Cassola, Nuno and Valla, Natacha, Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations (August 1, 2006). Banque de France Working Paper No. NER-R 151, Available at SSRN: https://ssrn.com/abstract=1698125 or http://dx.doi.org/10.2139/ssrn.1698125

Christian Ewerhart (Contact Author)

University of Zurich, Department of Economics ( email )

Schoenberggasse 1
Zurich, CH-8001
Switzerland

Nuno Cassola

University of Milan Bicocca - CefES ( email )

Milan
Italy

University of Lisbon - CEMAPRE ( email )

Lisbon
Portugal

Natacha Valla

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

European Central Bank (ECB) ( email )

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Frankfurt am Main, 60314
Germany
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Banque de France ( email )

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France
+33 1 42922756 (Phone)
+33 1 42926296 (Fax)

HOME PAGE: http://www.iue.it/Personal/Researchers/valla/

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