Determinants Of The Foreign Exchange Auction Marginal Rate In Ethiopia

Ethiopia has moved through a number of stages to achieve therndetermination of mechanism . Among introduction of 'rnequilibrium exchange through market allocationrnthese, the devaluation of the Birr and thernthe Dutch auction market system for foreignrnexchange (Forex) in May 1993 are the first two measures taken. Thernauction system helped to unify the marginal rate and the officialrnrate on the 59rn auction, in July 1995. It has also made possiblernfor the elimination of t he parallel market premium which was 52%rnwhen it was started. The premium was totally eliminated in Januaryrn1998. The unification was speeded up as the parallel raternappreciates and the marginal rate depreciates . Empirical findingsrnare made based on Log - linear zed Autoregressive Distributed LagrnModel (ADL) to determine the auction marginal rate. Number ofrnbidders, demand and supply of Forex are found to determine thernauction marginal rate . This study advances the following policyrnimplications based on the empirical findings and in the light ofrnthe experience of some African countries; to instill methods tornimprove transparency, legalization of Forex bureaus (dealers), thernmaintenance of the sustainability or the unification or the ratesrnand to sustain the stability or the supply or Forex to the auction,rnand further liberalization of the existing rules and regulation.

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