Working Paper Series no. 151: Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations (en anglais)

Abstract

It is argued that bidders in liquidity-providing central bank operations should typically possess declining marginal valuations. Based on this hypothesis, we construct equilibrium in central bank refinancing operations organised as variable rate tenders. In the case of the discriminatory pricing rule, bid shading does not disappear in large populations. The predictions of the model are shown to be consistent with the data for the euro area.

Christian Ewerhart, Nuno Cassola and Natacha Valla
August 2006

Classification JEL : D44, E52.

Keywords : Open market operations, uniform price auction, discriminatory auction, Eurosystem.