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Title:The repo auctions of the European Central Bank and the vanishing quota puzzle PDF Logo
Authors:Nautz, Dieter
Oechssler, Jörg
Issue Date:1999
Series/Report no.:Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1999,79
Abstract:Weekly repo auctions are the European Central Bank's most important policy instrument. Provided that banks bid seriously, these auctions should reveal useful information about banks' liquidity needs and the stance of monetary policy. However 1 as we show in this paper, the applied auction rules specify a game without equilibrium. In particular, banks have incentives to grossly exaggerate their needs for refinancing. In response, they are drastically rationed, and the allotment quota virtually vanishes over time, which makes banks' bids useless as a monetary indicator. Our empirical results suggest that banks are requesting more than 25 times the amount they actually need - with increasing trend.
Subjects:monetary policy instruments
European Central Bank
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10046674
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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