Policy Rules and Bidding Behavior in the Ethiopian Foreign Exchange Auction

Janine Aron ()

Revista de Analisis Economico – Economic Analysis Review, 1998, vol. 13, issue 1, 213-248

Abstract: Ethiopia adopted a repeated Dutch auction for foreign exchange in May, 1993, for dedicated imports by the private and state sectors. Various African countries with rudimentary financial systems and thin foreign exchange markets have successfully employed auctions in transition from centralized, controlled systems to decentralized interbank markets. This paper characterizes the rules, regime shifts and auction outcomes in Ethiopia. It is emphasized that institutional micro-designs and operation of an auction can have important macroeconomic consequences during liberalization. Models for the Central Bank's supply rules for pre-announced supply of dollars in fortnightly and laver weekly auctions, confirm that the objective was to stabilize the exchange rate (the marginal auction price) in a thin market around depreciating trends. Bidders were able to learn the supply rules, clustering their bids around predicted target rates. Using a method novel in auction empirical literature, bidders' learning in repeated auctions is examined via the adjustment to equilibrium in error correction equations for the bid spread. Robust models for a similar learning process were found across both frequency regimes; but learning was faster here the exchange rate target was more transparent and uncertainty lower. Thus, a fairly stable depreciation was achieved over four years, despite considerable regime shifts from trade liberalization, the progressive lifting of auction entry barriers, increased frequency of auctions, fiscal and other seasonality in demand an temporary price shocks in coffee export earnings.

Keywords: ETHIOPIA; EXCHANGE RATE; FOREIGN EXCHANGE AUCTION (search for similar items in EconPapers)
JEL-codes: F31 O24 (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.rae-ear.org/index.php/rae/article/view/128 (application/pdf)

Related works:
Working Paper: Policy rules and bidding behaviour in the Ethiopian foreign exchange auction (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ila:anaeco:v:13:y:1998:i:1:p:213-248

Ordering information: This journal article can be ordered from

Access Statistics for this article

Revista de Analisis Economico – Economic Analysis Review is currently edited by Carlos Ponce

More articles in Revista de Analisis Economico – Economic Analysis Review from Universidad Alberto Hurtado/School of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Mauricio Tejada ().