Macro-Hedging for Commodity Exporters

Olivier Jeanne, Eduardo Borensztein and Damiano Sandri

No 7513, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Commodity exports; Default; Futures; Hedging; International reserves; Options; Precautionary savings (search for similar items in EconPapers)
JEL-codes: C61 E21 F30 F40 G13 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
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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