Macro-Hedging for Commodity Exporters

By Eduardo Borensztein, Damiano Sandri, Olivier D Jeanne

October 1, 2009

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Format: Chicago

Eduardo Borensztein, Damiano Sandri, and Olivier D Jeanne. Macro-Hedging for Commodity Exporters, (USA: International Monetary Fund, 2009) accessed November 9, 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

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.

Subject: Commodities, Consumption, Foreign assets, Hedging, Income

Keywords: Strike price, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/229
Stock No:

WPIEA2009229
ISBN:

9781451873764
ISSN:

1018-5941

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