In Favour of a Fund to Stabilize Commodity Exporters' Income

21 Pages Posted: 26 Jun 2006

See all articles by Daniel Cohen

Daniel Cohen

Ecole Normale Superieure (ENS) - Department and Laboratory of Applied and Theoretical Economics (DELTA); Centre for Economic Policy Research (CEPR)

Thibault Fally

UC Berkeley - ARE Department

Sebastien Villemot

Ecole Normale Superieure (ENS)

Date Written: March 2006

Abstract

Commodity prices are usually very slow to recover from adverse shocks. This is one of the reasons why it has proven so difficult either to smooth their effect or to stabilize them, and why it is sometimes argued that they should behave as if shocks were permanent. There is no reason however why countries should not find ways to protect themselves. This paper develops one practical idea on how this could be done. Our goal is not to stabilize prices, but to smooth the income of the producers. Countries, we assume, should get protection against deviation of commodity prices from a moving average of past prices. This avoids the pitfalls of past stabilization that attempted to stabilize around a single price and yet our scheme gives countries time to adjust to permanent shocks. Over a period of a 50 years time horizon, we simulate that the median cost would be worth about six months of exports.

Keywords: Commodities, low income countries, stabilization

JEL Classification: F34, O13

Suggested Citation

Cohen, Daniel and Fally, Thibault and Villemot, Sebastien, In Favour of a Fund to Stabilize Commodity Exporters' Income (March 2006). CEPR Discussion Paper No. 5550, Available at SSRN: https://ssrn.com/abstract=912233

Daniel Cohen (Contact Author)

Ecole Normale Superieure (ENS) - Department and Laboratory of Applied and Theoretical Economics (DELTA) ( email )

48 boulevard Jourdan
75014 Paris
France
+33 1 4313 6208 (Phone)
+33 1 4424 3857 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Thibault Fally

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

Sebastien Villemot

Ecole Normale Superieure (ENS) ( email )

45 rue d’Ulm
Paris Cedex 05, F-75230
France
+33 1 4313 6230 (Phone)