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The Information Content of Central Bank Auctions Evidence from


The Information Content of Central Bank Auctions:

Evidence from the European Money Market

?

Puriya Abbassi

Dieter Nautz

Gutenberg Univer

sity Mainz

Goethe University Frankfurt

October 7, 2008

Abstract
The minimum bid rate pre-announced in the weekly main re nancing operations (MRO) is supposed to be the European Central Bank's (ECB) key interest rate for signalling the intended level of short-term interest rates. Using daily and intra-day data of overnight rates, we investigate whether the MRO auction results contain additional information relevant for the money market. Our results show that the marginal MRO rate is of particular importance for the overnight rate in the euro area. The strong reaction of Eonia swap rates to the marginal MRO rate suggests that the auction result may even a ect longer-term interest rate expectations.
Keywords : Central bank auctions; Monetary policy implementation; European Central Bank; Money markets JEL classi cation : E52; D44

? Financial

support by the Deutsche Forschungsgemeinschaft (DFG) through NA-385/4-1 is gratefully

acknowledged. The research for this paper was partly conducted while Puriya Abbassi was visiting the Monetary Policy Division of the ECB. We thank Vincent Brousseau, Huw Pill, Diego Rodriguez and in particular Tobias Linzert for helpful comments and suggestions. E-mail: puriya.abbassi@uni-mainz.de, nautz@wiwi.uni-frankfurt.de.

1

Introduction

?eekly m?in ren?n?ing oper?tions @w?ysA ?re of overwhelming import?n?e for the monE et?ry poli?y implement?tion of the iurope?n gentr?l f?nk @igfAF ?he minimum ?id r?te preE?nnoun?ed in w?ys is supposed to ?e the igf9s key interest r?te whi?h sign?ls the poli?yEintended level for shortEterm money m?rket r?tesF sn p?rti?ul?rD liquidity supply in w?ys should ensure th?t the iurope?n overnight r?te @ioni?A ?losely follows the miniE mum ?id r?te ?nd th?t its vol?tility rem?ins well ?ont?inedD see eFgF ijerskov et ?lF @PHHVAF ?e?entlyD howeverD ? puzzling ?nd unintended upw?rd trend in the spre?d ?etween the ioE ni? ?nd the minimum ?id r?te reve?led th?t the rel?tion ?etween w?ys ?nd the money m?rket is underrese?r?hedF por ex?mpleD ?ontr?di?ting e?rlier estim?tes of the liquidity ee?tD even the provision of m?ssive ex?ess liquidity in w?ys ?ould not ?ring the ioni? to its former levelD see igf @PHHTA ?nd vinzert ?nd ??hmidt @PHHUAF sn order to shed more light on the link ?etween w?ys ?nd the inter??nk money m?rketD this p?per investig?tes how the ioni? responds to inform?tion reve?led ?y w?y ?u?tion out?omesF yn the ?llotment d?yD the igf pu?lishes the num?er of ?iddersD tot?l ?llotment ?nd tot?l ?ids together with the m?rgin?l ?nd the ?ver?ge ?llotment r?te of the w?yF ell these v?ri??les m?y ?ont?in some inform?tion ??out the supply ?nd the ?ggreg?te dem?nd for liquidityF ?he money m?rket response reve?ls whether the ?u?tion out?ome h?s ?ont?ined new ?nd relev?nt inform?tion for the ??nksF yur study ??n ?e rel?ted to two groups of p?persF pirstD there is ? growing empiri??l liter?ture on the dyn?mi?s ?nd the vol?tility of overnight r?tesF ?e?ent ex?mples in?lude f?rtolini ?nd ?r?ti @PHHTAD ?erez ?uiros ?nd ?odriguez wendiz???l @PHHTAD gol?rossi ?nd ??ghini @PHHUAD ?nd r?ssler ?nd x?utz @PHHVAF ell these ?ontri?utions investig?te how distinguishing fe?tures of the ?entr?l ??nk9s oper?tion?l fr?mework inuen?e the ?eh?vior of overnight r?tesF ?hey do not fo?us on the response of the overnight r?te to ?u?tion out?omesF ?he se?ond group of p?pers explores ??nks9 ?idding ?eh?vior in ?entr?l ??nk ?u?tionsD see eFgF findseil et ?lF @PHHRA ?nd vinzert et ?lF @PHHUAF ?sing individu?l ?idding d?t?D it ??n ?e shown th?t money m?rket ?onditions signi??ntly ?e?t ??nks9 ?idding
1

1

In the U.S. the empirical relevance of the liquidity e ect is still under debate, see e.g. Carpenter and

Demiralp (2008) and Thornton (2007).

I

?eh?viorF ?hese p?pers try to expl?in the ?u?tion out?ome ?ut do not ?onsider its reperE ?ussions to the money m?rketF ?he ?losest referen?e to our p?per is x?utz @IWWUA who found ? signi??nt response of the qerm?n overnight r?te to the ?u?tions of the fundes??nk ??sed on d?ily d?t?F ?he ?urrent p?per explores the inform?tion ?ontent of the igf9s w?y ?u?tions using ?oth d?ily ?nd intr?Ed?y d?t? of overnight r?tesF woreoverD we employ d?ily ?h?nges of ioni? sw?p r?tes to explore how the ?u?tions ?e?t m?rket9s expe?t?tions ??out future ioni? movementsF sn the followingD we introdu?e the ?u?tion v?ri??lesD dis?uss their expe?ted inuen?e on the ioni? ?nd des?ri?e the relev?nt d?t?F ?e?tion Q presents the empiri??l results ??sed on errorE?orre?tion type ?djustment equ?tions of the money m?rket r?te to ?n ?u?tion out?omeF ?e?tion R ?on?ludesF
2 Data, Variables, and Predictions

2.1 Main re nancing operations and the money market

?in?e tune PHHHD w?ys ?re ?ondu?ted ?s v?ri??le r?te tendersD iFeF pri?eEdis?rimin?tory multiEunit ?u?tion where ??nks ?re ?llowed to su?mit multiple pri?eEqu?ntity ?idsF sn v?ri??le r?te tenders the resulting repo r?tes p?rti?lly depend on the ?ids of the ??nks ?nd thusD ?re not under the igf9s full ?ontrolF ?hereforeD the igf preE?nnoun?es ? minimum ?id r?te @r A th?t h?s ?e?ome the igf9s key interest r?te for sign?lling the poli?yEintended interest r?te levelF ?he igf invites ??nks to su?mit ?ids from wond?y QXQH pFmF to ?uesd?y WXQH ?FmF et ?uesd?y IIXPH ?FmFD the igf ?ommuni??tes vi? its wire servi?e the following ?u?tion resultsX @iA the m?rgin?l r?te @r A of the w?y @iiA the qu?ntity weighted ?ver?ge r?te @r A of ?ll su??essful ?idsD @iiiA the tot?l ?id ?mountD @ivA the num?er of ?iddersD ?nd @vA the tot?l ?llotment volumeF ?he response of the money m?rket to ?n ?u?tion out?ome should ?e ree?ted in overnight r?tes o?served immedi?tely ?fter the ?u?tion results ?re ?v?il??leF vet i ?nd i ?e the m?rket r?tes v?lid before ?nd after ??nks ?re informed ??out the ?u?tion out?omesF
2
MB m w b a

2

In June 2000, the ECB switched from xed to variable rate tenders to stop the MRO's escalating

overbidding problem, see Bindseil (2005).

P

?he money m?rket response to the ?u?tion is then reve?led in ?i a i ? i F ?e me?sure ?i in three w?ysF pirstD in line with the empiri??l liter?tureD we use d?ily d?t? of the ioE ni?D the iurope?n yverExight sndex ever?ge pu?lished ?y the igfF ioni? r?tes refer to tr?ns??tions ??rried out ?efore the ?losing of re?lEtime gross settlement @??q?A systems ?t TFHH pFmF @gi?A ?nd ?re pu?lished on the s?me eveningF ?in?e the ?ulk of money m?rket tr?ns??tions ?re ??rried out ?fter the ?u?tion result is pu?lishedD the timing of w?ys suggests to use ioni? r?tes of wond?y @i A ?nd ?uesd?y @i A to me?sure the money m?rket re??tion to ?n ?u?tion out?omeF sf money m?rkets re??t qui?kly to new inform?tion ??out the liquidity situ?tionD the average overnight r?te ?t the ?u?tion d?y ?ould ?e only ? poor ?pproxim?tion for i ?nd simil?r pro?lems m?y ?pply to i F ?hereforeD in ? se?ond spe?i??tion of ?iD we use overnight r?tes pu?lished ?y ?euters ?t WXQH ?FmF ?nd IIXPS ?FmF for i ?nd i D respe?tivelyF ?hese r?tes ?re very ?lose to the end of ?id su?mission ?nd the ?nnoun?ement of the ?u?tion out?omeF roweverD in ?ontr?st to the ioni?D ?v?il??le intr?Ed?y d?t? only refer to quotes of ??nks r?ther th?n ??tu?l tr?ns??tionsF pin?llyD ? third ?pproxim?tion of ?i employs d?ily d?t? of ioni? sw?p r?tes with one week m?turityF sn the iuro ?re?D ioni? sw?p r?tes ?re the m?in instrument for spe?ul?ting on ?nd hedging ?g?inst interest r?te movementsF ?he ?h?nge of ioni? sw?p r?tes ?t the ?u?tion d?y should ree?t the imp??t of the ?u?tion out?ome on m?rket9s expe?t?tions ??out future ioni? r?tesF
a b

3

b

a

a

b

b

a

2.2 The information revealed in an auction outcome

or stopEout r?te of ? w?yD r D depends on ?othD ??nks9 ?idding ?eh?vE ior ?nd the igf9s ?llotment de?isionF sn ?ny ??seD devi?tions of the m?rgin?l r?te from the overnight r?te v?lid immedi?tely ?efore the ?u?tionD r ? i D should imply th?t the overnight r?te i ?djusts ???ordinglyF sn ?n errorE?orre?tion type ?djustment equ?tion of ?iD the ?oe?ient of r ? i is expe?ted to ?e positiveF The weighted average rate of ? w?yD r D is typi??lly only ? few ??sis points ??ove the m?rgin?l r?teF v?rge w?y spre?dsD r ? r D m?y in?re?se the overnight r?te ?fter the
The marginal rate
m m b a m b w w m

3

The Eonia is based on a panel of approx. 50 banks with the highest business volume in the Euro area

money market, see http://www.euribor.org.

Q

?u?tion for two re?sonsF pirstD if ? l?rge p?rt of ?ids h?s ?een su?mitted ?t rel?tively high r?tesD the dem?nd for liquidity might h?ve ?een stronger th?n expe?tedF ?e?ondD l?rge w?y spre?ds indi??te ? high dispersion of ?ids typi??lly indu?ed ?y ?idders9 un?ert?inty ??out the ?u?tion9s m?rgin?l r?teD see eFgF ?limki @PHHTAF ? ? The cover to bid ratioD CBRD of ? w?y is dened ?s the r?tio ?etween the igf9s tot?l ?llotment ?nd the ??nks9 tot?l ?id volumeF v?rge ?over to ?id r?tios indi??te th?t ??nks re?eived ? lot of ren?n?ing rel?tive to their ?idF yne might expe?t th?t overnight r?tes should ?lw?ys de?re?se with in?re?sing ?over to ?id r?tiosF roweverD ?s vinzert et ?lF @PHHUA ?lre?dy emph?sizedD ? low ?over to ?id r?tio only le?ds to money m?rket tensions if it resulted from ??nks9 misper?eptions of the m?rgin?l r?te ?nd the situ?tion in the money m?rketF sf ??nks ?id seriously ?nd the m?rgin?l r?te of the w?y simply ex?eeded ??nks9 willingness to p?yD ? low ?over to ?id r?tio will not ne?ess?rily le?d to in?re?sing overnight r?tesF ?husD the sign of the ?over to ?id r?tio in ? money m?rket r?te ?djustment equ?tion is not o?viousF ?he number of bidders in w?ys h?s signi??ntly de?lined sin?e tune PHHHF pollowing eFgF findseil et ?lF @PHHRAD we estim?ted the new inform?tion ?ont?ined in the num?er of ?iddersD iFeF the unexpe?ted p?rt in this v?ri??leD employing ? univ?ri?te fore??st equ?tionF sn ??se of ? surprisingly l?rge num?er of ?iddersD pro???ly indi??ting ?n unexpe?tedly high liquidity dem?ndD the overnight r?te should in?re?seF glosely rel?ted to the ?ondu?t of w?ys is the volume of actual minus forecasted autonomous factorsD AF D typi??lly ?nnoun?ed ?y the igf ?t the ?u?tion d?yF ?in?e tune PHHHD the igf uses AF to r?tion?lize its ?urrent ?llotment de?ision whi?h ?ould h?ve devi?ted from m?rket9s expe?t?tions ??sed on fore??sted ?utonomous f??torsF sf positive
4 5

4

Moreover, on several occasions banks anticipated future rate cuts of the ECB and, therefore, simply

refrained from bidding. As a result, banks' total bid volume was so low that the ECB could not allot the intended volume of reserves. Due to banks' underbidding, the cover to bid ratio peaked to one but due to the lack of reserves overnight rates increased sharply at the auction day. The underbidding episodes refer to the MROs on 13 Feb, 10 Apr, 9 Oct and 6 Nov 2001, 3 Dec and 17 Dec 2002, 3 Mar, 3 Jun and 25 Nov 2003, 20 Feb and 23 Mar 2004, see Bindseil (2005). We excluded these observations from the sample to ensure that our results are not driven by underbidding auctions. 5 Forecasts are presented in the Appendix. Note that the use of alternative forecast and de-trending methods do not a ect our results.

R

v?lues of AF indi??te ?n ex?ess supply of liquidityD then the ?oe?ient of AF in the interest r?te ?djustment equ?tion should ?e neg?tiveF et the end of the reserve m?inten?n?e periodD when no further w?y will ?e ?ondu?tedD liquidity short?ges or ex?ess reserves ??n le?d to dr?m?ti? in?re?ses of overnight r?te vol?tilityF st is well understood ?y the m?rket th?t these se?son?l interest r?te u?tu?tions ?re tempor?ry ?nd unrel?ted to monet?ry poli?y sign?lsD see eFgF x?utz ?nd yerm?nns @PHHVAF ?o ensure th?t our results will not depend on the se?son?l ioni? movements ?t the very l?st d?y of the reserve periodD we ex?luded the ?u?tions performed ?t those p?rti?ul?r d?ys from the regressionsF xoteD howeverD th?t ?ll our results ?re ro?ust with respe?t to these s?mple ?djustmentsF ?he rem?ining s?mple ?ont?ins PTP ?u?tions ?ondu?ted from tune PUth PHHH to eugust Pnd PHHTF ?in?e intr?Ed?y d?t? is only ?v?il??le ?s of he? PHHHD the intr?Ed?y regressions ?re ??sed on PQP o?serv?tionsF
3 The Money Market Response to an Auction Outcome

yur empiri??l results on the inform?tion ?ontent of the igf9s w?y ?u?tions ?re ??sed on the following errorE?orre?tion type ?djustment equ?tion for the overnight r?teD ?i a c C @r ? i A C @r ? r A C
t m b t w m t t a;t b;t C

CBR

t

C

B

B

t

C

A

AF

t

C ?r

M B;t

C " @IA
t

where for e??h ?u?tion tD ?i a i ? i denotes the ?h?nge of the money m?rket r?teF ?nd determine the inform?tion ?ontent of the m?rgin?l @r A ?nd the weighted ?ver?ge repo r?te @r AF CBR ?nd B denote the ?u?tion9s logged ?over to ?id r?tio ?nd the unexpe?ted p?rt in the num?er of ?iddersD AF ?ontrols for news ?on?erning ?utonomous f??torsF ?o ?llow for ? p?rti?l ?djustment of the overnight r?te to preE?nnoun?ed ?h?nges of the minimum ?id r?teD we ?lso in?luded ?r in the regressionsF ???le I summ?rizes our results o?t?ined for the three me?sures of ?i F por ioni? sw?p r?tesD the only relev?nt inform?tion reve?led ?y w?ys is ?ont?ined in the m?rgin?l w?y r?teF ?he estim?ted ?djustment ?oe?ient @ a H:WIUSA is highly signi??ntD pl?usi?ly b signed ?nd ?lose to oneF yn ?n ?u?tion d?yD the ?nnoun?ement of the new m?rgin?l w?y r?te ???ounts for ??out VT7 of the v?ri?n?e of sw?p r?te movementsF sn ?ontr?stD none of the other ?u?tion v?ri??les pu?lished ?y the igf ?e?t the money m?rket9s expe?t?tions
m w MB t

S

???le IX ?he woney w?rket ?esponse to ?n eu?tion yut?ome woney w?rket ?esponse @?i A
t

eu?tion ??ri??les @r ? i A @r ? r A goverEtoEfid ??tio @CBRA xum?er of fidders @B A eutonomous p??tors @AF A ?r
m b w m MB

h?ily ioni? sntr? h?y h?t? I{?eek ioni? ?w?p ??tes H:RTQT??? H:QRSS??? H:WIUS??? H:URQT? H:ITUI H:HPTI H:HQRP??? ?H:HHWW ?H:HHQW H:HHHP ?H:HHHI H:HHHI ?H:HHII ?H:HHIT?? ?H:HHHT ?H:HHHT H:HQVP H:HQHP
[0:1386] [0:1164] [0:0540] [0:4422] [0:0133] [0:0002] [0:2179] [0:2585] [0:0081] [0:0001] [0:0111] [0:0001] [0:0013] [0:0007] [0:0005] [0:0710] [0:0688] [0:0201]

y?sF
R2

pEv?lue

PTP PQV PTP H:SH H:SQ H:VT ??ld tests of p?r?meter equ?lityX H X a vs H X Ta H:SI H:RT H:HH
0 1

Notes: Estimation results refer to the money market rate adjustment equation (1). ??? ;?? ;? indicate signi cance at the 1%, 5%, 10% level. White heteroskedasticity-consistent standard errors in parentheses. The sample period covers Jun 2000-Aug 2006 for daily Eonia and Eonia swap rates and Dec 2000-Aug 2006 for intra day data. The index t denotes the number of the MRO. For the sake of robustness, we excluded end of period auctions, underbidding episodes and the MRO with anomalous allotment one week after the terrorist attack, i.e. 18.09.2001. Results of Wald tests presented as p-values.

??out future overnight r?tes in ? signi??nt w?yF ?he signi??nt role of the m?rgin?l r?te is ?onrmed ?y the results o?t?ined for d?ily ?nd intr?Ed?y overnight r?tesF por these r?tesD howeverD the weighted ?ver?ge w?y r?te might pl?y ?n ?ddition?l roleF ?he estim?ted ?oe?ients of the w?y spre?d @r ? r A ?re pl?usi?ly signed ?nd in ??se of the d?ily ioni? even we?kly signi??ntF ?he l?rge st?nd?rd errors of the estim?tes of m?y ree?t th?t the v?ri?tion in w?y spre?ds is typi??lly sm?llF sn f??tD ???ording to the ??ld tests shown ?t the ?ottom of ???le ID the nullEhypothesis th?t the inform?tion ?ontent of the m?rgin?l ?nd the weighted ?ver?ge w?y r?te is the s?me @ a A ??nnot ?e reje?ted for the d?ily ioni? ?nd intr?Ed?y overnight r?tesF
w m

6

6

Note that = implies (rm ? ib ) + (rw ? rm ) = (rw ? ib ), see Equation (1).

T

?hile the ?nnoun?ed num?er of ?idders is ?le?rly irrelev?nt for the money m?rketD the eviden?e is more mixed for the ?overEtoE?id r?tioF ?here?s the estim?ted imp??t of gf? is pl?usi?ly signed ?ut insigni??nt for sw?p r?tes ?nd intr?Ed?y d?t?D the d?ily ioni? responds signi??ntly to the logged ?overEtoE?id r?tio ?ut with ?n impl?usi?le signF ?he results o?t?ined for the money m?rket response to news ??out ?utonomous f??tors ?re ?lso interestingF sn line with the notion of ? liquidity ee?t of ?n ex?ess supply of reservesD the estim?ted ?oe?ients of AF ?re neg?tive for ?ll interest r?tesF roweverD the liquidity ee?t of AF is only signi??nt for intr?Ed?y d?t? indi??ting th?t ?n inje?tion of ?ddition?l IH?ln euros will lower the overnight ?y only IFT ??sis pointsF qiven former estim?tes of the liquidity ee?t in the iuro ?re?D the response of the money m?rket to the liquidity provided ?y the igf is rem?rk??ly we?kF
4 Concluding Remarks

?he minimum ?id r?te preE?nnoun?ed in the m?in ren?n?ing oper?tions @w?yA is supE posed to ?e the igf9s key interest r?te for sign?lling the intended level of shortEterm interest r?tesF ?his p?per investig?ted whether the ?u?tion results pu?lished ?y the igf ?ont?in ?ddition?l inform?tion relev?nt for the money m?rketF ?e found th?t the m?rgin?l w?y r?te is of p?rti?ul?r import?n?e for the overnight r?te in the euro ?re?F sn ?ontr?st to other ?u?tion v?ri??lesD in?luding the num?er of ?idders ?nd the ?overEtoE?id r?tioD the imp??t of the m?rgin?l w?y r?te on the overnight r?te is highly signi??nt ?nd pl?usi?ly signedF sn p?rti?ul?rD the strong re??tion of ioni? sw?p r?tes to the m?rgin?l w?y r?te suggests th?t the ?u?tion result m?y even ?e?t longerEterm interest r?te expe?t?tionsF ?he signi??nt re??tion of money m?rket r?tes to w?y ?u?tion out?omes might indiE ??te th?t ??nks ?re to some degree un?ert?in ??out the igf9s ??tu?l poli?y r?te ?ndD thusD ??out the intended interest r?te levelF sn f??tD ?omp?red with the un?m?iguous t?rget for the feder?l funds r?te of the ?F?F feder?l reserveD the rel?tion ?etween the igf9s poli?y r?te ?nd the t?rget level of the overnight r?te is not o?viousD see eFgF ro @PHHVD pFUAF yn the one h?ndD due to dierent m?turities ?nd ?oll?ter?l requirementsD the 4n?tur?l spre?d4 ?etween the minimum ?id r?te ?nd the overnight r?te is un?ert?in ?nd m?y even v?ry over timeD see vinzert ?nd ??hmidt @PHHUAF yn the other h?ndD there is ?n inherent ?symmeE U

try in the igf9s poli?y r?te ?e??use ? minimum ?id r?te m?y ?e p?rti?ul?r ee?tive for sign?lling lower ?ounds for the overnight r?te where?s upper ?ounds ?re less ?le?rF iven though the igf h?s downpl?yed the inform?tion ?ontent of its ?u?tions on sever?l o???sions @see eFgF igf PHHPAD m?ny ??nks tend to ?elieve th?t their results ?onvey import?nt poli?y sign?lsF sn p?rti?ul?rD following ?rtz @PHHQAD ??nks ?pp?rently ?onsider u the m?rgin?l r?teD ?nd not the minimum ?id r?teD ?s the ?urrent 4f?ir pri?e4 for liquidityD due to its ?etter ??p??ity ?s the ?ver?ge pri?e p?id for ?entr?l ??nk liquidityF woreoverD in ?ontr?st to the f?nk of ingl?ndD the igf seems to undermine the role of its own poli?y r?te ?y referring to m?rgin?l w?y r?tes ?nd not to the minimum ?id r?te ?s the remuner?tion r?te of ??nks9 reserve ???ountsF en e?ient oper?tion?l fr?mework of monet?ry poli?y should ?void un?ert?inty ??out the ?entr?l ??nk9s poli?y sign?lsF ?he f?nk of ingl?ndD for ex?mpleD re?ently emph?sized th?t ?ll shortEterm repos will ?e ?t the ?entr?l ??nk9s poli?y r?te 4to rule out spe?ul?E tion ??out whether the result of ? tender reve?led ?nything ??out the w?gs r?te intenE tions4D see ?u?ker @PHHRAF ?he signi??nt response of iurope?n money m?rket r?tes to the m?rgin?l r?te of the ?entr?l ??nk9s ?u?tions suggests th?t the igf m?y improve the implement?tion of its key poli?y r?te ?nd the ?ommuni??tion of the intended interest r?te levelF

V

References

f?rtoliniD vFD ?r?tiD eF @PHHTA 4grossE?ountry dieren?es in monet?ry poli?y exe?ution ?nd money m?rket r?tes9 vol?tility4D iurope?n i?onomi? ?eview SH@PAX QRW{QUTF findseilD ?F @PHHSA 4yverE ?nd under?idding in ?entr?l ??nk open m?rket oper?tions ?ondu?ted ?s xed r?te tender4D qerm?n i?onomi? ?eview T@IAX WS{IQHF findseilD ?FD xy?orgD uFqFD ?tre?ul?evD sF @PHHRA 4fidding ?nd perform?n?e in repo ?u?tionsX ividen?e from igf open m?rket oper?tions4D gFiF?F? his?ussion ??pers RQ{TUF g?rpenterD ?FD hemir?lpD ?F @PHHVA 4?he viquidity ee?t in the feder?l funds m?rketX ividen?e ?t the monthly frequen?y4D tourn?l of woneyD gredit ?nd f?nking RH@IAX I{PR gol?rossiD ?FD ??ghiniD eF @PHHUA 4qr?du?lismD tr?nsp?ren?y ?nd improved oper?tion?l fr?meworkX e look ?t the overnight vol?tility tr?nsmission4D gp? ?orking ??per ITF ijerskovD ?FD wossD gFwFD ?tr????D vF @PHHVA 4row does the igf implement monet?ry poli?yc4D tourn?l of sntern?tion?l woney ?nd pi?nn?eD forth?omingF iurope?n gentr?l f?nk @PHHPA 4?he liquidity m?n?gement of the igf4D wonthly fulletinD w?yF iurope?n gentr?l f?nk @PHHTA 4?he iurosystem9s oper?tion?l fr?mework ?nd the vol?tility of the overnight r?te4D wonthly fulletinD tulyF roD gF @PHHVA 4smplementing monet?ry poli?y in the PHHHsX yper?ting pro?edures in esi? ?nd ?eyond4 fs? ?orking ??per PSQF vinzertD ?FD x?utzD hFD findseilD ?F @PHHUA 4fidding ?eh?vior in the longer term reE n?n?ing oper?tions of the iurope?n gentr?l f?nkX ividen?e from ? p?nel s?mple sele?tion model4D tourn?l of f?nking ?nd pin?n?e QI@SAX ISPI{ISRQF vinzertD ?FD ??hmidtD ?F @PHHUA 4?h?t expl?ins the spre?d ?etween the iuro overnight r?te ?nd the igf9s poli?y r?tec4D gii? his?ussion ??per HUEHUTD forth?oming ?s igf ?orking ??perF x?utzD hF @IWWUA 4row ?u?tions reve?l inform?tionX e ??se study on qerm?n repo r?tes4D tourn?l of woneyD greditD ?nd f?nking PW@IAX IU{PSF x?utzD hFD yerm?nnsD gFtF @PHHUA 4?he dyn?mi? rel?tionship ?etween the iuro W

overnight r?teD the igf9s poli?y r?te ?nd the term spre?d4D sntern?tion?l tourn?l of pin?n?e ?nd i?onomi?s IP @QAX PVU{QHHF x?utzD hFD yerm?nnsD gFtF @PHHVA 4?ol?tility tr?nsmission in the iurope?n money m?rket4D xorth emeri??n tourn?l of i?onomi?s ?nd pin?n?e IW@IAX PQEQWF ?rez ?uirsD qFD ?odrguez wendiz??lD rF @PHHTA 4?he d?ily m?rket for funds in e o  ? iuropeX ?h?t h?s ?h?nged with the iw?c4D tourn?l of woneyD gredit ?nd f?nking QV@IAX WI{IIVF ?horntonD hFvF @PHHUA 4?he d?ily ?nd poli?yErelev?nt liquidity ee?ts4D p?f of ?tF vouis ?orking ??per HHIfF ?u?kerD ?F @PHHRA 4w?n?ging the ?entr?l ??nk9s ??l?n?e sheetX ?here monet?ry poli?y meets n?n?i?l st??ility4D f?nk of ingl?nd ?u?rterly fulletinD eutumnX QSW{QVPF ?limkiD ?F @PHHTA 4?hy the m?rgin?l w?y r?te ex?eeds the igf poli?y r?tec4D ? ? f?nk of pinl?nd ?ese?r?h his?ussion ??per ?eries PHF ?uertzD pF @PHHQA 4e ?omprehensive model of the iuro overnight r?te4D igf ?orking ??per PHUF

IH

A

Appendix

A.1 Data gures

pigure IX ioni? ?nd the minimum ?id r?te

Notes: The day-to-day change of Eonia (right scale), the minimum bid rate and the Eonia on the auction day (left scale). Notice that, since the daily dataset has been pared down to the auction relevant days, the drawn data has not a daily frequency. The x-axis, therefore, refers only to the data at the auction t. The shaded area refers to the period prior to the reform in the ECB's operational framework as of March 2004.

pigure PX w? spre?d ?nd w?y spre?d

Notes: The spread between the average MRO rate and the marginal rate, rw ? rm (MRO spread), (right scale) and the deviations of the marginal MRO rate from the Eonia , rm ? ib (MR spread), valid immediately before the auction t (left scale). For further details see Figure 1.

II

pigure QX ?he ?over to ?id r?tio

Notes: Bank's total bid volume (red line, right scale, in EUR billions) and ECB's total allotment (black line, right scale, in EUR billions) and the cover to bid ratio (left scale). For further details see Figure 1.

pigure RX e?tu?l minus fore??sted ?utonomous f??tors @in EUR billions)

Notes: Actual autonomous factors (black line, right scale) and forecasted autonomous factors (red line, right scale) and their di erence (left scale). For further details see Figure 1.

IP

pigure SX ?he num?er of ?idders

Notes: Actual (black line, right scale), forecasted (red line, right scale) and the unexpected number of bidders (left scale). For further details see Equation (2) and (3).

A.2 Forecast equation of number of bidders

?he unexpe?ted num?er of ?idders is in?luded in order to ?ontrol for the de?lining time trend during our s?mpleD see pigure SF pollowing eFgF findseil et ?lF @PHHRA determined this v?ri??le ?y regressing the num?er of ?idders @B A in the ?urrent ?u?tion @t A on the num?er of ?idders in previous ?u?tionsF ?ith respe?t to the ?h?nges in se?son?lity ?nd m?turity in the igf9s oper?tion?l fr?mework ?s of w?r?h PHHR D we estim?ted two dierent fore??st equ?tions for e??h su?periodX
t

7

B

OldF ramework

t

a IW:ST C H:QU B ? C H:ST B ? ? TT:QS D C WP:RSD ?
(12:06) (0:07)
t

1

(0:07)

t

2

@PA C RI:IWD ?
(17:25)
t U nderbid

U nderbid

U nderbid

(14:75)

t

(31:96)

t

1

2

;

for the s?mple prior to w?r?h PHHR ?nd
The Governing Council of the ECB presented in 2003 two basic changes in the operational framework, becoming operative in March 2004: First, the timing of the reserve maintenance period was adjusted to the Governing Council meetings at which the monthly assessment of the monetary policy stance was prescheduled. Currently, the subsequent maintenance period starts on the settlement day of the rst MRO after the Council's meeting. Second, the maturity of MROs was reduced from two weeks to an one week tenor.
7

IQ

B

N ewF ramework

t

a IRW:TR C H:SW B ? ? PV:WVD
(22:35) (0:06)
t

1

U nderbid

(2:47)

t

C Q:PQ D ?
(2:47)
t

U nderbid

1

;

@QA

?fter w?r?h PHHR ?nd where white heterosked?sti?ityE?onsistent st?nd?rd errors ?re reported in p?renthesesF ?e h?ve ?lso in?luded the dummy v?ri??le to ???ount for underE ?idding episodes o??ured in ?u?tion tD iFeF D a IF
8
U nderbid t

The underbidding episodes refer to the MROs on 13 Feb, 10 Apr, 9 Oct and 6 Nov 2001, 3 Dec and 17 Dec 2002, 3 Mar, 3 Jun and 25 Nov 2003, 20 Feb and 23 Mar 2004, see Bindseil (2005).

8

IR


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