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

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. Overall the results suggest that strategic and optimal behavior is prevalent in ECB tenders. We find evidence of a statistically significant bidshading component, even though the number of bidders is very large. Bidshading increases with liquidity uncertainty and decreases with the number of participants