Why Did the Banks Overbid? An Empirical Model of the Fixed Rate Tenders of the European Central Bank

CEMFI Working Paper No. 0104

21 Pages Posted: 23 Jun 2001

See all articles by Juan Ayuso

Juan Ayuso

Banco de España

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: March 2001

Abstract

This paper tests two hypotheses for the overbidding behavior of the banks in the fixed rate tenders conducted by the European Central Bank (ECB) from January 1999 until June 2000. One hypothesis attributes the overbidding to the expectations of a future tightening of monetary policy, while the other attributes it to the liquidity allotment decisions of the ECB. The model is estimated with individual bidding data of the Spanish banks, and also with aggregate bidding data of all Spanish banks and all banks in the euro area. The empirical results provide support for the second hypothesis.

Keywords: European Central Bank, open market operations, money auctions, bidding behavior

JEL Classification: E52, E58, D44

Suggested Citation

Ayuso, Juan and Repullo, Rafael, Why Did the Banks Overbid? An Empirical Model of the Fixed Rate Tenders of the European Central Bank (March 2001). CEMFI Working Paper No. 0104. Available at SSRN: https://ssrn.com/abstract=272728 or http://dx.doi.org/10.2139/ssrn.272728

Juan Ayuso

Banco de España ( email )

Alcala 50
Servicio de Estudios
28014 Madrid
Spain
+34 91 338 5735 (Phone)
+34 91 338 5624 (Fax)

Rafael Repullo (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91429 0551 (Phone)
+34 91429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~repullo/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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