Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/61699
Authors: 
Nautz, Dieter
Oechssler, Jörg
Year of Publication: 
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
auctions
European Central Bank
JEL: 
E52
D44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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