Commodity Price Shocks and Fiscal Outcomes
50 Pages Posted: 27 Aug 2012
Date Written: May 2012
The experience of developing countries over 1990-2010 indicates that commodity prices have a significant impact on fiscal outcomes. Both revenue and expenditure rise in response to commodity (import or export) price increases; the response of the fiscal deficit is ambiguous. A floating exchange rate regime only partially offsets the impact; foreign-exchange reserves do not dampen the effects. Hence, there is a strong case for fiscal hedging against commodity price shocks. Hedging instruments based on a limited set of benchmark world prices for a narrow set of commodities may suffice to realize most of the potential benefits.
Keywords: Commodity prices, Exchange rate regimes, External shocks, Floating exchange rates, Low-income developing countries, export prices, commodity export, commodity exporters, exporters, import prices, exchange rate regime, commodity exports, export price, fuel exporters, import price, trade taxes, export revenue, commodity trade, export volumes, export price index, domestic prices, export taxes, world price, international markets, value of exports, total exports, export restrictions, world prices, exporting countries, exporter, increased export, agricultural trade, international trade, trade shocks, price fluctuations, world markets, export commodities, dynamic effects, world ? prices, exchange r
JEL Classification: E62, F40
Suggested Citation: Suggested Citation