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

Author

Listed:
  • Juan Ayuso

    (Banco de España)

  • Rafael Repullo

    (CEMFI)

Abstract

This paper tests two hypotheses for the overbidding behavior of the banks in the fixed rate tenders conducted by the European Central Bank from January 1999 until June 2000. One hypothesis attributes the overbidding to expectations of a future tightening of monetary policy, while the other attributes it to the liquidity allotment decisions of the ECB.

Suggested Citation

  • Juan Ayuso & Rafael Repullo, 2001. "Why Did the Banks Overbid? An Empirical Model of the Fixed Rate Tenders of the European Central Bank," Working Papers 0105, Banco de España.
    • Handle: RePEc:bde:wpaper:0105
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0105e.pdf
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    References listed on IDEAS

    as
    1. Dieter Nautz & Jörg Oechssler, 2003. "The Repo Auctions of the European Central Bank and the Vanishing Quota Puzzle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 207-220, June.
    2. Juan Ayuso & Rafael Repullo, 2003. "A Model of the Open Market Operations of the European Central Bank," Economic Journal, Royal Economic Society, vol. 113(490), pages 883-902, October.
    3. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    4. Campbell, John Y, 1987. "Money Announcements, the Demand for Bank Reserves, and the Behavior of the Federal Funds Rate within the Statement Week," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 56-67, February.
    5. Breitung, Jorg & Nautz, Dieter, 2001. "The empirical performance of the ECB's repo auctions: evidence from aggregated and individual bidding data," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 839-856, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Funaki, Yukihiko & Shino, Junnosuke & Uto, Nobuyuki, 2020. "Vulnerability of fixed-rate funds-supplying operations to overbidding: An experimental approach," Global Finance Journal, Elsevier, vol. 46(C).
    2. Vogel, Edgar, 2014. "MRO bidding in the presence of LTROs: an empirical analysis of the pre-crisis period," Working Paper Series 1753, European Central Bank.
    3. Linzert, Tobias & Nautz, Dieter & Bindseil, Ulrich, 2007. "Bidding behavior in the longer term refinancing operations of the European Central Bank: Evidence from a panel sample selection model," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1521-1543, May.
    4. Gabriel Pérez Quirós & Hugo Rodríguez Mendizábal, 2012. "Asymmetric Standing Facilities: An Unexploited Monetary Policy Tool," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(1), pages 43-74, April.
    5. Shino, Junnosuke, 2013. "A positive theory of fixed-rate funds-supplying operations in an accommodative financial environment," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 595-610.
    6. Bindseil, Ulrich, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank.
    7. Würtz, Flemming Reinhardt, 2003. "A comprehensive model on the euro overnight rate," Working Paper Series 207, European Central Bank.
    8. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2012. "Overbidding in fixed rate tenders: The role of exposure risk," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 539-549.
    9. Philipp Hartman & Frank Smets, 2018. "The European Central Bank’s Monetary Policy during Its First 20 Years," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 1-146.
    10. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks [‘Estimating continuous-time stochastic volatility models of the short-term interest rate’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 435-467.
    11. Bucher, Monika & Hauck, Achim & Neyer, Ulrike, 2014. "Frictions in the interbank market and uncertain liquidity needs: Implications for monetary policy implementation," DICE Discussion Papers 134, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. Nautz, Dieter & Oechssler, Jorg, 2006. "Overbidding in fixed rate tenders--an empirical assessment of alternative explanations," European Economic Review, Elsevier, vol. 50(3), pages 631-646, April.
    13. Linzert, Tobias & Nautz, Dieter & Breitung, Jorg, 2006. "Bidder behavior in central bank repo auctions: Evidence from the Bundesbank," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(3), pages 215-230, July.
    14. Ulrike Neyer, 2009. "Interest on Reserves and the Flexibility of Monetary Policy in the Euro Area," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 417-438, June.
    15. Nautz, Dieter & Linzert, Tobias & Breitung, Jörg, 2003. "Bidder Behavior in Repo Auctions without Minimum Bid Rate: Evidence from the Bundesbank," Discussion Paper Series 1: Economic Studies 2003,13, Deutsche Bundesbank.
    16. Linzert, Tobias & Nautz, Dieter & Bindseil, Ulrich, 2004. "The longer term refinancing operations of the ECB," Working Paper Series 359, European Central Bank.
    17. Hartmann, Philipp & Smets, Frank, 2018. "The first twenty years of the European Central Bank: monetary policy," Working Paper Series 2219, European Central Bank.
    18. Margarida Catalão-Lopes, 2010. "Fixed- and Variable-Rate Tenders in the Management of Liquidity by the Eurosystem: Implications of the Recent Credit Crisis," International Journal of Central Banking, International Journal of Central Banking, vol. 6(2), pages 199-230, June.
    19. Cassola, Nuno & Ewerhart, Christian & Valla, Natacha, 2005. "Equilibrium and inefficiency in fixed rate tenders," Working Paper Series 554, European Central Bank.
    20. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
    21. Wiemers, Jürgen & Neyer, Ulrike, 2003. "Why do we have an interbank money market?," IWH Discussion Papers 182/2003, Halle Institute for Economic Research (IWH).
    22. Ulrike Neyer & Jürgen Wiemers, 2004. "The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 395-428, September.
    23. Ulrich Bindseil, 2005. "Over‐ and Underbidding in Central Bank Open Market Operations Conducted as Fixed Rate Tender," German Economic Review, Verein für Socialpolitik, vol. 6(1), pages 95-130, February.
    24. Monika Bucher & Achim Hauck & Ulrike Neyer, 2020. "Interbank market friction-induced holdings of precautionary liquidity: implications for bank loan supply and monetary policy implementation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 165-222, July.
    25. Giuseppe Bruno & Ernesto Maurizio Ordine & Antonio Scalia, 2005. "Banks� participation in the Eurosystem auctions and money market integration," Temi di discussione (Economic working papers) 562, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    central banks; monetary policy; expectations;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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