Macro-Hedging for Commodity Exporters

34 Pages Posted: 3 Nov 2009 Last revised: 22 Sep 2010

See all articles by Eduardo Borensztein

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)

Damiano Sandri

International Monetary Fund (IMF) - Research Department

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. We show that 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.

Suggested Citation

Borensztein, Eduardo and Jeanne, Olivier and Sandri, Damiano, Macro-Hedging for Commodity Exporters (October 2009). NBER Working Paper No. w15452. Available at SSRN: https://ssrn.com/abstract=1498953

Eduardo Borensztein (Contact Author)

Inter-American Development Bank (IADB) ( email )

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Olivier Jeanne

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

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

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Damiano Sandri

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

700 19th Street NW
Washington, DC 20431
United States

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