Managing Terms of Trade Volatility
Terms of trade shocks may slow growth,
worsen the distribution of income, and raise the odds of
highly disruptive currency crises. This note raises
questions on how can countries cope with terms of trade
shocks; if commodity price stabilization funds can help;
and, how can the private sector hedge. Countries need banks,
governments, and hedging instruments to strategically cope
with volatile external environments in the management of
commodity price shocks. Banks should impose capital and
liquidity requirements, and encourage internationalization
of the domestic banking system, and, governments should
promote transparency, delegating fiscal decision-making, by
restricting the executive from spending, to avoid
inconsistent deficits with inter-termporal solvency. Another
strategy is to promote self-insurance, by creating commodity
price stabilization funds that forbid the government from
spending more than a specified portion of the income that it
earns from a key commodity. But there is good reason to
implement policies that promote hedging by the private
sector, provided the public sector responds with the legal,
and institutional framework, enabling appropriate risk
management, i.e., both hedging, and self-insurance, even if
strategies require that political economy, and technical
obstacles be overcome.
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Bibliographic Details
| Main Author: |
Hausmann, Ricardo |
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| Format: | Brief
biblioteca
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| Language: | English |
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| Published: |
World Bank, Washington, DC
1999-02
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| Subjects: | TRADE DEFICITS,
ECONOMIC SHOCKS,
ECONOMIC MANAGEMENT,
INCOME DISTRIBUTION,
CURRENCY STABILIZATION FUNDS,
TERMS OF TRADE,
COMMODITY PRICING POLICY,
PRIVATE SECTOR MANAGEMENT,
HEDGING,
BANKING SYSTEMS,
CAPITAL REQUIREMENTS,
LIQUIDITY CONTROLS,
DOMESTIC MARKETS,
FISCAL EFFICIENCY,
PUBLIC SPENDING,
DEFICITS,
SOLVENCY,
SELF-INSURANCE,
COMMODITY STABILIZATION FUNDS,
LEGAL & REGULATORY FRAMEWORK,
INSTITUTIONAL FRAMEWORK,
RISK MANAGEMENT CONSTITUENCIES,
CURRENCY,
CURRENCY CRISES,
DEBT,
DEVELOPMENT ECONOMICS,
DOMESTIC BANKING SYSTEM,
ECONOMIC ENVIRONMENT,
ECONOMIC IMPACT,
ECONOMIC POLICY,
EXCHANGE RATE,
EXCHANGE RATE REGIMES,
EXTERNAL ENVIRONMENT,
EXTERNAL SHOCKS,
FINANCIAL CRISIS,
FINANCIAL SYSTEM,
FISCAL,
FISCAL DEFICIT,
FISCAL POLICY,
FUNGIBILITY,
GOVERNMENT OFFICIALS,
HUMAN CAPITAL,
INCOME,
INSTITUTIONAL ARRANGEMENTS,
INSTITUTIONAL REFORM,
INSTITUTIONAL REFORMS,
INSURANCE,
INTERNATIONALIZATION,
LIQUIDITY,
MACROECONOMIC SHOCKS,
MACROECONOMIC STABILITY,
MACROECONOMIC VOLATILITY,
OIL,
POLITICAL ECONOMY,
POVERTY REDUCTION,
PRESIDENCY,
PRIVATE SECTOR,
PUBLIC SECTOR,
REAL EXCHANGE,
REAL EXCHANGE RATE,
RISK MANAGEMENT,
SLOW GROWTH,
STABILIZATION,
TERMS OF TRADE SHOCKS,
TRANSPARENCY,
VULNERABILITY, |
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| Online Access: | http://documents.worldbank.org/curated/en/1999/02/717482/managing-terms-trade-volatility
http://hdl.handle.net/10986/11495
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