Macro-Hedging for Commodity Exporters

Eduardo Borensztein, Damiano Sandri and Olivier Jeanne

No 2009/229, IMF Working Papers from International Monetary Fund

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: WP; strike price (search for similar items in EconPapers)
Pages: 29
Date: 2009-10-01
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Macro-hedging for commodity exporters (2013)
Working Paper: Macro-Hedging for Commodity Exporters (2010)
Working Paper: Macro-Hedging for Commodity Exporters (2009)
Working Paper: Macro-Hedging for Commodity Exporters (2009)
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