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
Date Written: March 2001
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: Suggested Citation