It is argued that bidders in liquidity-providing central bank operations should typically possess declining marginal valuations. Based on this hypothesis, we construct an equilibrium in central bank refinancing operations organised as variable rate tenders. In the case of the discriminatory...

Liquidity provision through its repo auctions has been one of the main instruments of the European Central Bank (ECB) to address the recent tensions in financial markets since summer 2007. In this paper, we analyse banks' bidding behaviour in the ECB's main refinancing operations (MROs) during...

We analyze the impact of the recent financial market crisis on the Euro Overnight Index Average (EONIA) and interbank market trading and assess the effectiveness of the ECB liquidity policy between 07/2007 - 08/2008. We extend the model of [QM06] by (i) incorporating the microstructure of the...

This paper studies the relationship between the size of the banking sector’s refinancing needs vis-à-vis the central bank and auction rates in its open market operations in times of financial market stress. In a theoretical model, it is found that marginal rates at central bank auctions may...

The fixed rate tender is one of the main procedural formats relied upon by central banks in their implementation of monetary policy. This fact stands in a somewhat puzzling contrast to the prevalent view in the theoretical literature that the procedure, by fixing interest rate and quantity at...