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    How (not) to sell money

    Daripa, Arup (2005) How (not) to sell money. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    A repo auction is a multi-unit common value auction in which bidders submit demand functions. Such auctions are used by the Bundesbank as well as the European Central Bank as the principal instrument for implementing monetary policy. In this paper, we analyze a repo auction with a uniform pricing rule. We show that under a uniform pricing rule, the usual intuition about the value of exclusive information can be violated, and implies free riding by uninformed bidders on the information of the informed bidders, lowering payoff of the latter. Further, free riding can distort the information content of auction prices, in turn distorting the policy signals, hindering the conduct of monetary policy. The results agree with evidence from repo auctions, and clarifies the reason behind the Bundesbank’s decision to switch away from the uniform price format. Our results also shed some light on the rationale behind the contrasting switch to the uniform price format in US Treasury auctions.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0520
    Keyword(s) / Subject(s): Repo auction, Informational Free Riding, Monetary Policy Signals
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 29 Mar 2019 13:49
    Last Modified: 31 Jul 2019 23:59
    URI: http://eprints.bbk.ac.uk/id/eprint/26974

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