Policy towards Commodity Shocks in Developing Countries

August 1, 1996

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Format: Chicago

Jan Gunning, and Paul Collier. Policy towards Commodity Shocks in Developing Countries, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

On the basis of a comparative study of 23 episodes involving commodity price shocks we find that both the public and private sectors typically save around half of a windfall gain resulting from a price rise. We argue that private windfalls should be left with the private sector rather than taxed. The focus of policy towards windfalls should be monetary rather than fiscal. The central bank should accommodate aggregate changes in the demand for financial assets. The private sector will initially wish to increase its claims on the central bank as it saves the windfall, but will then reduce them as portfolios are switched into real assets.

Subject: Agricultural commodities, Banking, Central banks, Commodities, Demand for money, Income, Monetary base, Money, National accounts, Reserves accumulation

Keywords: Africa, Agricultural commodities, Asset demand, Demand for money, Financial asset, Income, Investment rate, Monetary base, Price level, Private sector, Rate, Rate of return, Reserves accumulation, Savings rate, Windfall income, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/084
Stock No:

WPIEA0841996
ISBN:

9781451850598
ISSN:

1018-5941

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