AN EVALUATION OF THE RE-INTRODUCED DUTCH AUCTION SYSTEM AS A MEANS OF DETERMINING A REALISTIC AND STABLE VALUE OF THE NAIRA
AN EVALUATION OF THE RE-INTRODUCED DUTCH AUCTION SYSTEM AS A MEANS OF DETERMINING A REALISTIC AND STABLE VALUE OF THE NAIRA
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Date
2006-02
Authors
UMAR, AUWAL
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Abstract
In 2002, the Central Bank Nigeria (CBN) re-introduced the Dutch Auction System
(DAS) which was earlier introduced in 1987 and 1990 in Nigeria to eliminate distortions,
speculation, opportunism and sharp practices. It appears that between 1986 and 2002 in
spite of the various exchange rate management systems, the goals of efficient and stable
exchange rate were elusive. This study uses data on 354 DAS sessions to evaluate the
effects of the DAS in generating efficiency and stability of the values of the Naira. Trend
Analysis and ADF tests were used to evaluate stochastic properties of the DAS series.
Foreign exchange spreads were estimated and their trend evaluated to determine effects on
efficiency. GARCH models of Demand and Marginal Price were estimated to analyze
stability. The study found that the DAS series exhibited different patterns of volatility,
while the DAS spread declined, the parallel exchange rate premium increased and both
demand and marginal rate were volatile. Thus, the DAS seems not to have made the foreign
exchange more efficient or stable. Since March, 2006 the Central Bank of Nigeria has
replaced the old retail DAS in favor of the wholesale DAS for the achievement of
efficiency and stability of the Naira exchange rate. However, while the exchange rate
spread has declined, this seems to have been brought about by increase in supply of foreign
exchange by the CBN. It is not clear if the seeming convergence in exchange rate is
sustainable. The study therefore, recommends further investigation into the recent phase of
the DAS, focusing on the problems of sustainability.
AUWAL, Umar –ABU,Zaria
Description
A THESIS SUBMITTED TO THE POSTGRADUATE SCHOOL IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD
OF THE DEGREE OF MASTER OF SCIENCE IN ECONOMICS
DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCE
AHMADU BELLO UNIVERSITY
ZARIA.
FEBRUARY,
Keywords
EVALUATION, RE-INTRODUCED, DUTCH, AUCTION SYSTEM, MEANS, DETERMINING, REALISTIC, STABLE, VALUE, NAIRA