Over- and underbidding in central bank open market operations conducted as fixed rate tender

Ulrich Bindseil

No B 03-2004, ZEI Working Papers from University of Bonn, ZEI - Center for European Integration Studies

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.

Keywords: open market operations; tender procedures; central bank liquidity management (search for similar items in EconPapers)
JEL-codes: D84 E43 E52 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zeiwps:b032004

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