Macro-Hedging for Commodity Exporters

30 Pages Posted: 26 Oct 2009

See all articles by Damiano Sandri

Damiano Sandri

International Monetary Fund (IMF) - Research Department

Eduardo Borensztein

Inter-American Development Bank (IADB)

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2009

Abstract

This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for commodity-exporting countries. The introduction of hedging instruments such as futures and options enhances domestic welfare through two channels. First, by reducing export income volatility and allowing for a smoother consumption path. Second, by reducing the country's need to hold foreign assets as precautionary savings (or by improving the country's ability to borrow against future export income). Under plausibly calibrated parameters, the second channel may lead to much larger welfare gains, amounting to several percentage points of annual consumption.

Keywords: Commodities, Commodity price fluctuations, Cross country analysis, Developing countries, Economic models, Export earnings, Export markets, Financial instruments, Financial risk, Hedge funds, International trade, Risk management

Suggested Citation

Sandri, Damiano and Borensztein, Eduardo and Jeanne, Olivier, Macro-Hedging for Commodity Exporters (October 2009). IMF Working Papers, Vol. , pp. 1-29, 2009. Available at SSRN: https://ssrn.com/abstract=1493546

Damiano Sandri (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Eduardo Borensztein

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Olivier Jeanne

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Room 10-548L
Washington, DC 20431
United States
202-623-4272 (Phone)
202-623-6334 (Fax)

Ecole Nationale des Ponts et Chaussees (ENPC) ( email )

28 rue des Saints-Pres
75007 Paris
France
+33 1 44 58 28 76 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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