Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations
54 Pages Posted: 26 Oct 2010
Date Written: August 1, 2006
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: Suggested Citation