How Auctions Reveal Information: A Case Study on German REPO Rates.

Securities repurchase agreements (REPOs) have become the Bundesbank's most important tool for its ongoing money market management and the control of the monetary base. In the fall of 1988, the Bundesbank changed the applied auction rule in order to prevent banks from submitting exaggerated bids. Focusing on the information content of a resulting REPO rate, this paper investigates how German money market rates react to auction results. Evidence will be found that the response of the money market to a new REPO rate reflects the applied auction rule. Copyright 1997 by Ohio State University Press.