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In Favour of a Fund to Stabilize Commodity Exporters' Income

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  • Cohen, Daniel
  • Fally, Thibault
  • Villemot, Sébastien

Abstract

Commodity prices are usually very slow to recover from adverse shocks. This is one of the reasons why it has proven so difficult either to smooth their effect or to stabilize them, and why it is sometimes argued that they should behave as if shocks were permanent. There is no reason however why countries should not find ways to protect themselves. This paper develops one practical idea on how this could be done. Our goal is not to stabilize prices, but to smooth the income of the producers. Countries, we assume, should get protection against deviation of commodity prices from a moving average of past prices. This avoids the pitfalls of past stabilization that attempted to stabilize around a single price and yet our scheme gives countries time to adjust to permanent shocks. Over a period of a 50 years time horizon, we simulate that the median cost would be worth about six months of exports.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5550.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5550

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Keywords: commodities; low income countries; stabilization;

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  1. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
  2. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  3. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability," IMF Working Papers 01/68, International Monetary Fund.
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Cited by:
  1. Cohen, Daniel & Jacquet, Pierre & Reisen, Helmut, 2007. "Loans or Grants?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Annalisa Prizzon & Gianni Vaggi, 2009. "On The Sustainability of External Debt: Is Debt Relief Enough?," Quaderni di Dipartimento 094, University of Pavia, Department of Economics and Quantitative Methods.

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