Structural econometric approach to bidding in the main refinancing operations of the Eurosystem

Nuno Cassola (), Christian Ewerhart and Claudio Morana
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Nuno Cassola: European Central Bank (ECB), Postal: Kaiserstrasse 29, D-60311, Frankfurt am Main, , Germany,, http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=334845

Journal of Financial Transformation, 2007, vol. 19, 81-90

Abstract: This paper contributes to the existing literature on central bank repo auctions. It is based on a structural econometric approach, whereby the primitives of bidding behavior (individual bid schedules and bid-shading components) are directly estimated. With the estimated parameters we calibrate a theoretical model in order to illustrate some comparative static results. This exercise sheds light on the debate about the reversed winner’s curse found in the empirical literature on ECB auctions by showing that it may be related to an identification problem. Overall the results suggest that strategic and optimal behavior is prevalent in ECB tenders. We find evidence of a statistically significant bid-shading component, even though the number of bidders is very large. Bid-shading increases with liquidity uncertainty and decreases with the number of participants and with price uncertainty. We argue that a sufficient condition for the latter effect to appear in the data is that the residual supply facing an individual bidder does not change much ex-post when very short-term market rates increase.

Keywords: Central bank repo auctions; econometrics; bidding behavior; monetary integration (search for similar items in EconPapers)
JEL-codes: B23 E42 E52 (search for similar items in EconPapers)
Date: 2007
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Related works:
Working Paper: Structural econometric approach to bidding in the main refinancing operations of the Eurosystem (2007)
Working Paper: Structural Econometric Approach to Bidding in the Main refinancing Operations of the Eurosystem (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1402

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