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| Author: | Ayuso, J. Repullo, R. |
| Title: | A model of the open market operations of the European Central Bank |
| Journal: | Economic Journal
2003 : OCT, VOL. 113:490, p. 883-902 |
| Index terms: | European Central Bank Tender offers |
| Freeterms: | Open market operations |
| Language: | eng |
| Abstract: | The two types of tenders used by the European Central Bank in its open market operations are modeled. The authors assume that the ECB minimizes a loss function that depends on the difference between the interbank rate and a target rate that characterizes the stance of monetary policy. When the loss function penalises interbank rates below the target more heavily, fixed rate tenders have a unique equilibrium with high overbidding, while variable rate tenders have multiple equilibria with moderate overbidding. The empirical analysis is consistent with the predictions of the model and supports the hypothesis of an asymmetric loss function. |
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