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Optimical Commodity Price Stabilizador Over the Business Cycle

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  • Rodrigo Suescún M.

Abstract

This paper develops a model to study the design, characterization and dynamic implications of stabilization policies in a dynamic general equilibrium model of the business cycle for an economy tainted by the Dutch disease. The model incorporates a stabilization scheme for the producer price of an export crop in a three- sector RBC model. Stabilization funds have been very popular instruments in developing countries to deal with export price instability. This paper shows that such schemes cannot improve the functioning of the economy, notwithstanding the assumed suboptimality of private outcomes and the possibility of having welfare enhancing policies.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 154.

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Handle: RePEc:bdr:borrec:154

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Keywords: Business cycles; Dynamic games; Price Stabilization; Optimal policies; Small open economy Clasiffication JEL:E42; F41.;

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  1. Grilli, Enzo R & Yang, Maw Cheng, 1988. "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," World Bank Economic Review, World Bank Group, World Bank Group, vol. 2(1), pages 1-47, January.
  2. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
  3. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262022834, December.
  4. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(396), pages 426-42, June.
  5. Tornell, Aaron & Lane, Philip R., 1998. "Are windfalls a curse?: A non-representative agent model of the current account," Journal of International Economics, Elsevier, Elsevier, vol. 44(1), pages 83-112, February.
  6. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
  7. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  8. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 825-48, December.
  9. Deaton, A. & Laroque, G., 1989. "On The Behavior Of Commodity Prices," Papers, Princeton, Woodrow Wilson School - Development Studies 145, Princeton, Woodrow Wilson School - Development Studies.
  10. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  11. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
  12. Steve Ambler & Alain Paquet, 1994. "Recursive Methods for Computing Equilibria of General Equilibrium Dynamic Stackelberg Games," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 25, CREFE, Université du Québec à Montréal.
  13. Ambler, Steve & Paquet, Alain, 1997. "Recursive methods for computing equilibria of general equilibrium dynamic Stackelberg games," Economic Modelling, Elsevier, Elsevier, vol. 14(2), pages 155-173, April.
  14. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, Elsevier, vol. 27(1-2), pages 41-55, October.
  15. Gary D. Hansen & Edward C. Prescott, 1992. "Recursive methods for computing equilibria of business cycle models," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 36, Federal Reserve Bank of Minneapolis.
  16. Richard N. Cooper, 1992. "Economic Stabilization and Debt in Developing Countries," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262031876, December.
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