Bidding behavior in the longer term refinancing operations of the European Central Bank: Evidence from a panel sample selection model

Linzert, Tobias; Nautz, Dieter; Bindseil, Ulrich

doi:10.1016/j.jbankfin.2007.01.006

Cited by 30 publications

(43 citation statements)

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“…To show that q P decreases, assume to the contrary that q P 31 As pointed out by many writers, it would be very desirable to have a full-fledged model of the discriminatory auction incorporating heterogeneity of bidders, incomplete information, and non-linear valuations. This might allow to explain further interesting empirical observations as reported, e.g., in ECB [19], Bindseil, Nyborg, and Strebulaev [10], Breitung and Nautz [11], Linzert, Nautz, and Bindseil [41], and Bruno, Ordine, and Scalia [12]. In Ewerhart, Cassola, and Valla [29], we develop such a model for the case of the fixed rate tender.…”

Section: Ecb Working Paper Series No 668mentioning

confidence: 81%

Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations

2006

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Section: Ecb Working Paper Series No 668mentioning

confidence: 81%

Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations

2006

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“…Allen, Peristiani, and Saunders (1989) provide empirical evidence of differences in purchase behavior among differently sized banks in the federal funds market (see also Furfine, 1999). In the euro area, Nyborg, Bindseil, and Strebulaev (2002), Linzert, Nautz, and Bindseil (2007), and Craig and Fecht (2007) present evidence suggesting that large banks pay less, but they do not control for banks' liquidity positions.…”

Section: Ecb Working Paper Series No 1376mentioning

confidence: 99%

The price of liquidity: The effects of market conditions and bank characteristics

Fecht¹,

Nyborg

Rocholl

2011

Journal of Financial Economics

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“…They do not focus on the response of the overnight rate to auction outcomes. The second group of papers explores banks' bidding behavior in central bank auctions, see e. g. Linzert et al (2007), Bindseil et al (2009), andCassola et al (2009). Using individual bidding data, it can be shown that money market conditions significantly affect banks' bidding behavior.…”

Section: List Of Tablesmentioning

confidence: 99%

“…One might expect that overnight rates should always decrease with increasing cover-to-bid ratios. However, as Linzert et al (2007) already emphasized, a low cover-to-bid ratio only leads to money market tensions if it resulted from banks' misperceptions of the marginal rate and the situation in the money market. If banks bid seriously and the marginal rate of the MRO simply exceeded banks' willingness to pay, a low cover-to-bid ratio will not necessarily lead to increasing overnight rates.…”

Section: The Response Of Money Market Rates To Mro Auction Outcomes 3mentioning

confidence: 99%

“…Response of longer-term money market rates (∆i t ) To that aim, we adopt the empirical approach of the previous sections and estimate the response of longer-term Eonia swap rates at an auction day to the variables char-7 For example, in contrast to its shorter-term MROs, the Eurosystem's longer-term refinancing operations (LTROs) have always been conducted as variable rate tenders without a pre-announced minimum bid rate that could have signalled a policy-intended level of longer-term interest rates, see Linzert et al (2007). During the crisis, the expectations' management of the ECB via its longer-term refinancing operations has become much more explicit.…”

Section: Mro Auctions and Longer-term Interest Rates During The Crisismentioning

confidence: 99%

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Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

Abbassi¹,

Nautz²

2012

The North American Journal of Economics and Finance

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The Eurosystem's main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm that the level of MRO rates governed short-term money market rates before the financial crisis. Since the start of the financial crisis, however, the information content of MRO rates has changed. While the levels of MRO rates have lost much of their pre-crisis significance, the spread between the weighted average and the marginal MRO rate has become an important barometer for the actual situation in the money market during the crisis.Keywords: Monetary Policy Implementation; Central bank auctions; European Central Bank; Money markets and Financial Crisis; JEL classification: E43; E52; E58; D44 Non-technical SummaryThe relation between the Eurosystem's main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. The liquidity supply through MROs should ensure that short-term money market rates closely follow the MRO rates and that their volatility remains well contained. This central aim of monetary policy implementation has never been an easy task. Even before the financial crisis, a puzzling and unintended upward trend in the spread between the European overnight rate (Eonia) and the MRO rates indicated that the monetary transmission mechanism is not sufficiently understood. Since the start of the financial crisis, spreads between the ECB's main refinancing rates and the money market rates have been huge and persistent. In order to shed more light on the very beginning of the monetary transmission process in the euro area, this paper investigated how money market rates respond to new information revealed by an MRO auction outcome before and during the financial crisis.Our results show that the financial crisis changed the information content of MRO auctions in two important ways. First, we find that the information contained in the levels of the MRO rates has significantly declined since the outbreak of the crisis in

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Bidding behavior in the longer term refinancing operations of the European Central Bank: Evidence from a panel sample selection model

Cited by 30 publications

References 16 publications

Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations

Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations

The price of liquidity: The effects of market conditions and bank characteristics

Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

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