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Declining valuations and equilibrium bidding in central bank refinancing operations


Ewerhart, Christian; Cassola, Nuno; Valla, Natacha (2010). Declining valuations and equilibrium bidding in central bank refinancing operations. International Journal of Industrial Organization, 28(1):30-43.

Abstract

Among the most puzzling observations on the euro money market are the discount in the weekly refinancing operations, the more aggressive bidding under uncertainty, the temporary flatness of bid schedules, and the development of interest rate spreads. To explain these observations, we consider a standard divisible-good auction with either uniform or discriminatory pricing, and place it in the context of a secondary market for interbank credit. The analysis links the empirical evidence to the endogenous choice of collateral in credit transactions. We also discuss the Eurosystem's preference for the discriminatory auction, the remuneration of reserves, and the impact of the recent market turmoil.

Among the most puzzling observations on the euro money market are the discount in the weekly refinancing operations, the more aggressive bidding under uncertainty, the temporary flatness of bid schedules, and the development of interest rate spreads. To explain these observations, we consider a standard divisible-good auction with either uniform or discriminatory pricing, and place it in the context of a secondary market for interbank credit. The analysis links the empirical evidence to the endogenous choice of collateral in credit transactions. We also discuss the Eurosystem's preference for the discriminatory auction, the remuneration of reserves, and the impact of the recent market turmoil.

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7 citations in Web of Science®
7 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2010
Deposited On:01 Feb 2010 14:07
Last Modified:05 Apr 2016 13:48
Publisher:Elsevier
ISSN:0167-7187
Publisher DOI:https://doi.org/10.1016/j.ijindorg.2009.05.003
Permanent URL: https://doi.org/10.5167/uzh-28447

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