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This paper employs individual bidding data to analyze the empirical performance of the longer term refinancing operations (LTROs) of the European Central Bank (ECB). We investigate how banks’ bidding behavior is related to a series of exogenous variables such as collateral costs, interest rate expectations, market volatility and to individual bank characteristics like country of origin, size, and experience. Panel regressions reveal that a bank’s bidding depends on bank characteristics. Yet, different bidding behavior generally does not translate into differences concerning bidder success. In contrast to the ECB’s main refinancing operations, we find evidence for the winner’s curse effect in LTROs. Our results indicate that LTROs do neither lead to market distortions nor to unfair auction outcomes. JEL classification: E52, D44
A distinguishing feature of the ECB’s monetary policy setup is the preannouncement of a minimum bid rate in its weekly repo auctions. However, whenever interest rates are expected to decline, the minimum bid rate is viewed as too high and banks refrain from bidding, severely impeding the ECB’s money market management. To shed more light on banks’ underbidding, we perform a panel analysis of the bidder behavior in the repo auctions of the Bundesbank where no minimum bid rate was set. Our results indicate that neither bank’s participation nor the submitted bid amount is significantly affected by an expected rate cut. This suggests that abandoning the minimum bid rate might increase the efficiency of the ECB’s money market management.
Inflation hat in den letzten Jahren weltweit erheblich an Popularität eingebüßt. Galten noch in den 1960er und 1970er Jahren moderate Inflationsraten von 5 bis 10 Prozent als wachstums- und beschäftigungsfördernd, so ist es mittlerweile in Politik und Wissenschaft nahezu unstrittig, dass Inflation vor allem volkswirtschaftliche Kosten verursacht und deshalb Preisstabilität das vorrangige Ziel moderner Geldpolitik sein muss. So sieht insbesondere die in Frankfurt ansässige Europäische Zentralbank (EZB) ihre Hauptaufgabe darin, die jährliche Inflationsrate in der Eurozone unter 2 Prozent zu halten. Klettert die Inflationsrate nur wenige Dezimalpunkte über diesen Zielwert, muss mit Zinserhöhungen und einer restriktiven Geldpolitik der Zentralbank gerechnet werden. Diese Geldpolitik i s t gerechtfertigt, wenn bereits niedrige Inflationsraten messbare realwirtschaftliche Effekte besitzen. Eine Studie der Professur für Empirische Makroökonomie untersucht deshalb den Einfluss von Inflation auf die Variabilität der relativen Preise.
This paper investigates various theories explaining banks´ overbidding in the fixed rate tenders of the European Central Bank (ECB). Using auction data from both the Bundesbank and the ECB, we show that none of the theories can on its own explain the observed overbidding. This implies that the proposed new rules by the ECB, aimed at neutralizing interest rate expectations, would not eliminate overbidding if the rationing rule in the fixed rate tenders remains unchanged. JEL - Klassifikation: D44 , E32
Inflation and relative price variability in the Euro area : evidence from a panel threshold model
(2006)
In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We ¯nd that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected in°ation has no distorting effects which supports price stability as an outcome of optimal monetary policy. JEL classification: E31, C23
The dynamic relationship between the Euro overnight rate, the ECB´s policy rate and the term spread
(2006)
This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB’s policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB’s interest rate corridor. JEL - Klassifikation: E43 , E52
Although stable money demand functions are crucial for the monetary model of the exchange rate, empirical research on exchange rates and money demand is more or less disconnected. This paper tries to fill the gap for the Euro/Dollar exchange rate. We investigate whether monetary disequilibria provided by the empirical literature on U.S. and European money demand functions contain useful information about exchange rate movements. Our results suggest that the empirical performance of the monetary exchange rate model improves when insights from the money demand literature are explicitly taken into account. JEL - Klassifikation: F31 , E41
Using the exact wording of the ECB’s definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure long-term inflation expectations and the credibility of the inflation target. Our results indicate that credibility has decreased in our sample period, particularly in the course of the deep recession implied by the COVID-19 pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term. We investigate how inflation expectations and the impact of the pandemic depend on personal characteristics including age, gender, education, income, and political attitude.