European Central Bank operations: experimental investigation of the fixed rate tender

In an experimental study the auction procedure of the fixed rate tender is investigated with which the main refinancing operation of the Eurosystem was carried out in the past. In June 2000 the fixed rate tender was replaced by the 'American' variable rate tender. This change was occasioned by the suspicion that banks grossly exaggerate their liquidity needs in their bids. The experimental results clearly support this hypothesis and demonstrate that the fixed rate tender method can be a regular invitation to the banks to continually raise their bids from auction to auction. JEL Classification: D44 Keywords: Monetary policy; Auctions; Eurosystem, Experimental economics