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Title:Over- and underbidding in central bank open market operations conducted as fixed rate tender PDF Logo
Authors:Bindseil, Ulrich
Issue Date:2004
Series/Report no.:ZEI working paper B 03-2004
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. Many central banks apply so-called “fixed rate tender” auctions in their open market operations. This note presents, on the basis of a survey of central bank experience, a model of bidding in such tenders. In their conduct of fixed rate tenders, many central banks faced specifically an “under”- and an “overbidding” problem. These phenomena are revisited in the light of the proposed model and the more general question of the optimal tender procedure and allotment policy of central banks is addressed.
Subjects:open market operations
tender procedures
central bank liquidity management
Document Type:Working Paper
Appears in Collections:ZEI Working Papers, Zentrum für Europäische Integrationsforschung, Universität Bonn

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