22 supply volatility would not induce a risk premium on the bids. Alternatively, bidders may have been risk neutral. This latter explanation probably applies for Zambia, and supports the conclusion reached on the basis of the revenue equivalence result. For Nigeria, supply was pre-announced for all or part of the auctions, in which case it was fairly stable relative to the variability of the auction rate. Preliminary regressions (not reported here) suggest that supply volatility is an important determinant of exchange rate voJatility, This would be a fruitful area for further research, with the implication that foreign aid may have an important ameliorating effect on supply volatility induced by temporary terms of trade shocks. The final testable hypothesis with policy implications concerns competitiveness in auctions. We consider the following hypothesis: the level of the exchange rate rises with expansion of the auction through expanding the number of eligible bidders/items. We test this hypothesis by including the number of bids in f (F) in the I9CM model _(5)_ of Section 4.1. The null hypothesis is H: as = 0 in the empirical specification of the long-run equilibrium term (equation (6))." Unfortunately we were only able to test this hypothesis for Nigeria. The reason is that in Ghana, total bid data is only available for the retail auction; in Uganda, bid data refers to aggregated bids submitted by banks; in Zambia, total bids include multiple bids at the same price by individual importers, differentiated by the use of foreign exchange. The results for Nigeria show a significant and positive effect for the number of bids, showing that in the longrun there is evidence for the theoretically-predicted competitiveness effect in a multi-unit repeated auction. It is importan **t** o note that this result obtains with the model controlling for policy interventions and the consequent structural shifts which characterised the Nigerian auction.

# **5.** CONCLUSIONS.

This paper has estimated models for the micro-determinants of the auction rate using weekly foreign exchange auction data from four Sub-Saharan African countries, Zambia, Uganda, Ghana and Nigeria. A simple underlying model synthesized from auction theoretica **l** iterature specifies the auction rate as a linear logarithmic function of fundamental variables and structural shift dummies. It was not possible to produce a structural model, as currently there is no available theoretical model in the literature for repeated sequential multi-unit auctions of this type. However, the repeated, sequential nature of these auctions and the non-stationarity of most of the individual auction variables was captured empirically by a cointegrated (error correction) framework. Even though this model does not allow a structural interpretation of the auction rate determinants, it permits estimation of the long-run path of the auction "9 Cointegration has **one** distinct advantage when measuring **the** effect of competition on bid **levels.** Hansen (1985) points out **that with** a positive **reserve** price, the theoretically relevant variable for **the number** of bidders is **not the** actual number of bidders, but the umneasurable Potential number of bidders. Giley **and** Karcls (1981) have c-rrected for **dtis tuncated** error problem by **the** Heckman procedure, including a dichotomous bidding decision: bid/do **noi** bid. However, **in** the context of cointegration. **the** variables involved are **1(1),** and **the estimators wil be** consistent whether or **not the** bidding decision dummy variable is included.