-23 -

rate in addition to accounting for short-run dynamic behaviour. In addition to consistently estimating<sup>long-</sup> run and parameters of auction fundamentals, a modified version of the<sup>error correction model (a la</sup> Phillips and Loritan, 1991) allows asymptotically efficient testing of three policy hypotheses<sup>motivated</sup> by auction theory. These are the revenue equivalence hypothesis, the competitiveness<sup>hypothesis and the</sup> effect of uncertainty on the auction-determined rate.

5.1 Summary of results.

The variables for which theoretically predicted effects could be assigned a priori are foreign exchange supply, demand, and the opportnity cost (parallel or bureaux exchange rate).<sup>The empirical</sup> results strongly corroborate the theoretical predictions in that sustained increased<sup>foreign exchange supply</sup> (demand) leads to an equilibrium auction rate appreciation (depreciation). Also, the parallel/bureaux rate was positive and strongly significant, representing an opportunity cost to bidders, but also<sup>signalling</sup> incredibility of macro-economic policy (see also Aron and Elbadawi, 1994). The<sup>model also lends strong</sup> support to the error correction framework, where the curient a&kction rate is shown to adjust to previous departures from equilibrium, while transitory movements in the fundamentals influenced<sup>the auction rate</sup> in the short-run. Finally, dummy variables representing policy interventions in Nigeria, Uganda<sup>and</sup> zambia were found to effect struucural shifts in the long-run auction rate.

The revenue equivalence hypothesis was tested for Nigeria and Zambia, where episodes of competitive and Dutch auctions followed consecutively. In both cases evidence<sup>was found against the</sup> revenue-equivalence hypothesis, with the Dutch auction (strongly) revenue-superior in Nigeria, and<sup>the</sup> competitive auction (weakly) dominating in Zambia. The interpretation of this<sup>result, however, is not</sup> straightforward, given that there is no theoretical result for repeated, multi-unit auctions. Theoretical models for more restricted auctions suggest several reasons for the result of non-equivalence (section 2.2). A possible explanation for revenue-superiority of the competitive auction is that bidders' private<sup>values</sup> are correlated, with risk-neutral and symmetric bidders (Weber, 1983). This result seems plausible for Zambia, given that the bids were published weekly for most of the auctions. A feasible explanation<sup>for</sup> Dutch-dominance in the wholesale auction in Nigeria is collusive behaviour by a small number of predominandy state-owned and risk-neutral banks (Robinson, 1985). To the extent that these results are robust, this implies that no revenue advantage can be assigned a priori to a repeated, multi-unit auction, irrespective of the underlying valuation characteristics of bidders. Apart from the static analysis of Tenorio (1993), this hypothesis has not been tested for repeated multi-unit auctions using actual<sup>auction</sup> data.

The impact of supply volatility (a proxy for uncertainty) on the level of the auction rate in repeated auctions was tested for all four countries, controlling for auction type, but was not found to produce a risk-preniium on the auction-determined rate in any country. In Ghana and Uganda, the use of a reserve price served to stem downward volatility in thin markets, or where disqualification<sup>for failing</sup> to abide by documentation requirements reduced demand. Moreover, although the rule<sup>was not pre-</sup>