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Smoothing Primary Exporters' Price Risks: Bonds, Futures, Options and Insurance

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Author Info

  • Kletzer, K.M.
  • Newbery, D.M.

Abstract

The costs of primary commodity price instability are reviewed and can be significant. Stabilization is problematic, given high serial correlation. Rolling over a sequence of one-year futures hedges can be quite effective and the optimal hedge is derived but encounters the problem of sovereign default risk. So does international lending and borrowing to smooth consumption. The authors derive the constrained optimal fully state-contingent contract for consumption smoothing of identically independent distributed and first order serially correlated price risks in the absence of enforceable contracts and compare this with more liquid commodity bond options and loan contracts. Copyright 1992 by Royal Economic Society.

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Bibliographic Info

Paper provided by Yale - Economic Growth Center in its series Papers with number 647.

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Length: 52 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:yalegr:647

Contact details of provider:
Postal: U.S.A.; YALE UNIVERSITY, ECONOMIC GROWTH CENTER, YALE STATION NEW-HAVEN CONNECTICUT 06520 U.S.A
Phone: (203) 432-3610
Fax: (203) 432-3898
Web page: http://www.econ.yale.edu/~egcenter/
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Keywords: costs ; prices ; commodities ; consumption ; econometrics;

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Cited by:
  1. Bernardo Guimaraes, 2007. "Optimal external debt and default," 2007 Meeting Papers 104, Society for Economic Dynamics.
  2. Claessens, Stijn, 2005. "Taking stock of risk management techniques for sovereigns," Policy Research Working Paper Series 3570, The World Bank.
  3. Kenneth Kletzer, 2005. "Sovereign debt, volatility, and insurance," Working Paper Series 2006-05, Federal Reserve Bank of San Francisco.
  4. Kletzer, Kenneth, 2004. "Sovereign Debt, Volatility and Insurance," Santa Cruz Center for International Economics, Working Paper Series qt71b785gd, Center for International Economics, UC Santa Cruz.
  5. G. Benavides & P. N. Snowden, 2006. "Futures for farmers: Hedging participation and the Mexican corn scheme," Journal of Development Studies, Taylor & Francis Journals, vol. 42(4), pages 698-712.
  6. Ricardo Caballero & Stavros Panageas, 2005. "A Quantitative Model of Sudden Stops and External Liquidity Management," NBER Working Papers 11293, National Bureau of Economic Research, Inc.
  7. Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research, Working Paper Series qt4qg3c42v, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Kannapiran, Chinna A., 2000. "Commodity price stabilisation: macroeconomic impacts and policy options," Agricultural Economics, Blackwell, vol. 23(1), pages 17-30, June.
  9. Hühnerbein, Ossip Robert, 2007. "Sovereign Debt Contracts and Financial Stability in Emerging Market Economies," Munich Dissertations in Economics 7302, University of Munich, Department of Economics.
  10. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers 5688, C.E.P.R. Discussion Papers.
  11. Benedict F. W. Bingham & James Daniel & Giulio Federico, 2001. "Domestic Petroleum Price Smoothing in Developing and Transition Countries," IMF Working Papers 01/75, International Monetary Fund.
  12. Kletzer, Kenneth, 2005. "Sovereign Debt, Volatility and Insurance," Santa Cruz Department of Economics, Working Paper Series qt7337d1nw, Department of Economics, UC Santa Cruz.
  13. Kletzer, Kenneth, 2004. "Sovereign Debt, Volatility and Insurance," Santa Cruz Department of Economics, Working Paper Series qt71b785gd, Department of Economics, UC Santa Cruz.
  14. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.
  15. Yothin Jinjarak, 2004. "On the hidden links between financing costs and international trade patterns," Econometric Society 2004 Far Eastern Meetings 501, Econometric Society.
  16. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.

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