Declining Valuations and Equilibrium Bidding in Central Bank Refinancing Operations

33 Pages Posted: 22 Aug 2006

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: July 16, 2007

Abstract

Among the most puzzling observations for the euro money market are the bid shading in the weekly refinancing operations and the development of interest rate spreads. To explain these observations, we consider a standard divisible-good auction à la Klemperer and Meyer (1989) with uniform or discriminatory pricing, and place it in the context of a secondary market for interbank credit. The analysis links the observations for the euro area to the endogenous choice of collateral in credit transactions. We also discuss the Eurosystem's apparent preference for the discriminatory pricing rule.

Keywords: Open market operations, uniform price auction, discriminatory, Eurosystem, discriminatory auction, bid shading, collateral

JEL Classification: D44, E52

Suggested Citation

Ewerhart, Christian and Cassola, Nuno and Valla, Natacha, Declining Valuations and Equilibrium Bidding in Central Bank Refinancing Operations (July 16, 2007). ECB Working Paper No. 668, Swiss Finance Institute Research Paper No. 07-22, Available at SSRN: https://ssrn.com/abstract=921539

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 )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 13440 (Phone)

Banque de France ( email )

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75049 Paris Cedex 01
France
+33 1 42922756 (Phone)
+33 1 42926296 (Fax)

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

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