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Macro-hedging for commodity exporters

  • Borensztein, Eduardo
  • Jeanne, Olivier
  • Sandri, Damiano

This paper uses a dynamic optimization model to quantify the potential welfare gains of hedging against commodity price risk for commodity-exporting countries. We show that hedging enhances domestic welfare through two channels: first, by reducing export income volatility; and second, by reducing the country's need to hold precautionary reserves and improving the country's ability to borrow against future export income. Under plausible calibrations of the model, the second channel may lead to much larger welfare gains, amounting to several percentage points of annual consumption.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 101 (2013)
Issue (Month): C ()
Pages: 105-116

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Handle: RePEc:eee:deveco:v:101:y:2013:i:c:p:105-116
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  8. Caballero, Ricardo J. & Panageas, Stavros, 2008. "Hedging sudden stops and precautionary contractions," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 28-57, February.
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  12. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
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