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Equilibrium bidding in the Eurosystem's open market operations

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  • Bindseil, Ulrich

Abstract

Open market operations play a key role in allocating central bank funds to the banking system and thereby to steer short-term interest rates in line with the stance of monetary policy. This note presents some elements of a theory of bidding in central bank tenders in a framework such as the one of the Eurosystem. The ECB has so far used fixed rate tenders and a variant of the variable rate tender, which may be similar to a fixed rate tender depending on market circumstances. In doing so, it faced consecutively an 'under-' and an 'overbidding' issue. The tools developed in this note to understand the bidding behavior of banks in these operations allow revisiting these phenomena and the more general question of the optimal tender procedure and allotment policy. JEL Classification: D84, E43, E52

Suggested Citation

  • Bindseil, Ulrich, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2002137
    Note: 327704
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    References listed on IDEAS

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    2. Würtz, Flemming Reinhardt, 2003. "A comprehensive model on the euro overnight rate," Working Paper Series 207, European Central Bank.
    3. Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2009. "The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 415-431, July.
    4. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(2), pages 241-261, June.
    5. Ejerskov, Steen & Martin Moss, Clara & Stracca, Livio, 2003. "How does the ECB allot liquidity in its weekly main refinancing operations? A look at the empirical evidence," Working Paper Series 244, European Central Bank.
    6. Ewerhart, Christian, 2002. "A model of the Eurosystem's operational framework for monetary policy implementation," Working Paper Series 197, European Central Bank.
    7. Välimäki, Tuomas, 2006. "Why the marginal MRO rate exceeds the ECB policy rate?," Research Discussion Papers 20/2006, Bank of Finland.
    8. Välimäki, Tuomas, 2003. "Central bank tenders : Three essays on money market liquidity auctions," Scientific Monographs, Bank of Finland, number 26/2003.
    9. repec:zbw:bofrdp:2006_020 is not listed on IDEAS
    10. Moschitz, Julius, 2004. "The determinants of the overnight interest rate in the euro area," Working Paper Series 393, European Central Bank.
    11. Livio Stracca & Clara Martin Moss & Livio Stracca, 2004. "Demand and supply in the ECB's main refinancing operations," Money Macro and Finance (MMF) Research Group Conference 2003 94, Money Macro and Finance Research Group.
    12. 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.
    13. Pérez Quirós, Gabriel & Sicilia, Jorge, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Working Paper Series 192, European Central Bank.
    14. Välimäki, Tuomas, 2006. "Why the marginal MRO rate exceeds the ECB policy rate?," Bank of Finland Research Discussion Papers 20/2006, Bank of Finland.
    15. 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.
    16. tuomas välimäki, 2004. "Variable rate liquidity tenders," Macroeconomics 0405010, University Library of Munich, Germany.
    17. Mr. Romain M Veyrune & Guido della Valle & Shaoyu Guo, 2018. "Relationship Between Short-Term Interest Rates and Excess Reserves: A Logistic Approach," IMF Working Papers 2018/080, International Monetary Fund.

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    More about this item

    Keywords

    central bank liquidity management; open market operations; tender procedures;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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