IDEAS home Printed from https://ideas.repec.org/a/ila/anaeco/v13y1998i1p213-248.html
   My bibliography  Save this article

Policy Rules and Bidding Behavior in the Ethiopian Foreign Exchange Auction

Author

Listed:
  • Janine Aron

    () (Department of Economics, University of Oxford, http://www.economics.ox.ac.uk/index.php/staff/aron/)

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.

Suggested Citation

  • Janine Aron, 1998. "Policy Rules and Bidding Behavior in the Ethiopian Foreign Exchange Auction," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 13(1), pages 213-248, June.
  • Handle: RePEc:ila:anaeco:v:13:y:1998:i:1:p:213-248
    as

    Download full text from publisher

    File URL: http://www.rae-ear.org/index.php/rae/article/view/128
    Download Restriction: no

    Other versions of this item:

    More about this item

    Keywords

    ETHIOPIA; EXCHANGE RATE; FOREIGN EXCHANGE AUCTION;

    JEL classification:

    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ila:anaeco:v:13:y:1998:i:1:p:213-248. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcela Perticara). General contact details of provider: http://edirc.repec.org/data/deilacl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.