Impacts of foreign exchange auctions on the informal market rate in Myanmar

Discussion Papers

No.532

by Koji KUBO

August 2015

ABSTRACT

Since the abolition of the official peg and the introduction of a managed float in April 2012, the Central Bank of Myanmar has operated the daily two–way auctions of foreign exchange aimed at smoothing exchange rate fluctuations. Despite the reforms to the foreign exchange regime, however, informal trading of foreign exchange remains pervasive. Using the daily informal exchange rate and Central Bank auction data, this study examines the impacts of auctions on the informal market rate. First, a VAR analysis indicates that the official rate did not Granger cause the informal rate. Second, GARCH models indicate that the auctions did not reduce the conditional variance of the informal rate returns. Overall, the auctions have only a quite modest impact on the informal exchange rate.

Keywords: Myanmar; foreign exchange auctions; informal market rate; GARCH model
JEL classification: E65, F31, O24

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