European Central Bank Operations: Experimental Investigation of the Fixed Rate Tender

Karl-Martin Ehrhart ()
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Karl-Martin Ehrhart: Universitaet Karlsruhe, Postal: RZ Zirkel 2 D-76128 Karlsruhe

No 01-38, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In an experimental study the auction procedure of the fixed rate tender is investigated with which the main refinancing operation of the Eurosystem was carried out in the past. In June 2000 the fixed rate tender was replaced by the 'American' variable rate tender. This change was occasioned by the suspicion that banks grossly exaggerate their liquidity needs in their bids. The experimental results clearly support this hypothesis and demonstrate that the fixed rate tender method can be a regular invitation to the banks to continually raise their bids from auction to auction.

Pages: 25 pages
Date: 2000-09-01
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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