Structural Econometric Approach to Bidding in the Main Refinancing Operations of the Eurosystem

Journal of Financial Transformation, Vol. 19, pp. 81-90, 2007

Posted: 3 Oct 2006

See all articles by Claudio Morana

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Christian Ewerhart

University of Zurich, Department of Economics

Nuno Cassola

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

Multiple version iconThere are 2 versions of this paper

Abstract

This paper contributes to the existing literature on central bank repo auctions. It is based on a structural econometric approach, whereby the primitives of bidding behavior (individual bid schedules and bid-shading components) are directly estimated. With the estimated parameters we calibrate a theoretical model in order to illustrate some comparative static results. This exercise sheds light on the debate about the reversed winner's curse found in the empirical literature on ECB auctions by showing that it may be related to an identification problem. Overall the results suggest that strategic and optimal behavior is prevalent in ECB tenders. We find evidence of a statistically significant bid-shading component, even though the number of bidders is very large. Bid-shading increases with liquidity uncertainty and decreases with the number of participants and with price uncertainty. We argue that a sufficient condition for the latter effect to appear in the data is that the residual supply facing an individual bidder does not change much ex-post when very short-term market rates increase.

Keywords: repo auctions, monetary policy implementation, primary money market market, multi unit auctions, discriminatory auctions, collateral, central bank, nonparametric estimation

JEL Classification: G21, G12, D44, E43, E50

Suggested Citation

Morana, Claudio and Ewerhart, Christian and Cassola, Nuno, Structural Econometric Approach to Bidding in the Main Refinancing Operations of the Eurosystem. Journal of Financial Transformation, Vol. 19, pp. 81-90, 2007, Available at SSRN: https://ssrn.com/abstract=934051

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Christian Ewerhart

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
534
PlumX Metrics