 A positive theory of fixed-rate funds-supplying operations in an accommodative financial environmentJournal of International Money and Finance, 2013, vol. 32, issue C, 595-610 Abstract: This paper studies bidding behaviors in fixed-rate funds-supplying auctions using a simple game-theoretic model. While the existing literature argues that such auction schemes are vulnerable to the overbidding problem, the bid-to-cover ratio for the Bank of Japan’s current fixed-rate operations has remained stable. After reviewing the stylized repo game and the mechanism of overbidding under the fixed-rate operations, we argue that the current framework of fixed-rate funds-supplying auctions operated by the Bank of Japan and the recent accommodative financial environment make bidders’ loss functions locally satiated. Given this argument, it is shown that any stable bid-to-cover ratios other than either undersubscription or overbidding can be supported by an equilibrium. Finally, we empirically find that the ratio under the Bank of Japan operations has been influenced by such financial conditions proxied by market interest rates and term spreads. Keywords: Fixed-rate funds-supplying auctions; European Central Bank; Bank of Japan; Overbidding problem; Strategic form game (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:32:y:2013:i:c:p:595-610 DOI: 10.1016/j.jimonfin.2012.05.026 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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