Search

Begin New Search Topic Commodities Publication Year within 10 Years

11. How to Cope with Volatile Commodity Export Prices: Four Proposals

Author:
Jeffrey Frankel
Publication Date:
07-2017
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Countries that specialize in commodities have in recent years been hit by high volatility in world prices for their exports. This paper suggests four ways that commodity-exporters can make themselves less vulnerable. (1) Option contracts can be used to hedge against short-term declines in the commodity price without giving up the upside, as Mexico has shown. (2) Commodity-linked bonds can hedge longer-term risk, and often have a natural ultimate counter-party in multinational corporations that depend on the commodity as an input. (3) The well-documented pro-cyclicality of fiscal policy among commodity exporters can be reduced by insulating official forecasters against an optimism bias, as Chile has shown. (4) Monetary policy can be made automatically more counter-cyclical, judged by the criterion of currency appreciation in reaction to positive terms-of-trade shocks, under either of two regimes: peggers can add the export commodity to a currency basket (CCB, for “Currency-plus-Commodity Basket”) and others can target Nominal Income instead of the CPI.
Topic:
Agriculture, Economics, Oil, Commodities, Currency Basket, and Indexed Bonds
Political Geography:
South America, Mexico, and Chile

12. The Currency-Plus-Commodity Basket: A Proposal for Exchange Rates in Oil-Exporting Countries to Accommodate Trade Shocks Automatically

Author:
Jeffrey Frankel
Publication Date:
03-2017
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The paper proposes an exchange rate regime for oil-exporting countries. The goal is to achieve the best of both flexible and fixed exchange rates. The arrangement is designed to deliver monetary policy that counteracts rather than exacerbates the effects of swings in the oil market, while yet offering the day-to-day transparency and predictability of a currency peg. The proposal is to peg the national currency to a basket, but a basket that includes not only the currencies of major trading partners (in particular, the dollar and the euro), but also the export commodity (oil). The plan is called Currency-plus-Commodity Basket (CCB). The paper begins by fleshing out the need for an innovative arrangement that allows accommodation to trade shocks. The analysis provides evidence from six Gulf countries that periods when their currencies were “undervalued”, in the sense that the actual foreign exchange value lay below what it would have been under the CCB proposal, were periods of overheating as reflected in high inflation and of external imbalance as reflected in high balance of payments surpluses. Conversely, periods when the currencies were “overvalued,” in the sense that their foreign exchange value lay above what it would have been under CCB, featured unusually low inflation and low balance of payments. These results are suggestive of the implication that the economy would have been more stable under CCB. The last section of the paper offers a practical blueprint for detailed implementation of the proposal.
Topic:
Economics, Oil, Exchange Rate Policy, Commodities, and Currency Basket
Political Geography:
Middle East, Saudi Arabia, and Gulf Nations

13. Macroeconomic Update: Indian Exports: Loss of Global Competitiveness

Author:
Rajiv Kumar and Geetima Das Krishna
Publication Date:
06-2015
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
India’s exports have declined for six consecutive monthssince December 2014 with an average decline of 13.85% yoy. The decline was broad-based. Even exports of Manufactured goods trended lower during this time and failed to compensate for the fall in nominal value of commodity exports, which declined due to a huge erosion of global commodity and oil prices. India’s exports seem to have become more reliant on global commodity prices in recent years. In line with global crude oil prices, India’s monthly petroleum exports that peaked in July’14 at $7 billion shrunk to mere $2.4 billion in May 2015, declining at an average of 52% since the start of the year. Iron ore exports having peaked at $509.5 million in December 2011 moved from $129.5 million in April 2014 to $10 million in May 2015. It is instructive to take a longer term perspective of export performance (Please see Chart I below). Average export growth hasremained almoststagnantsince January 2012 after a sharp bounce back from the collapse in the first and second quarters of 2009, induced by the global financial crisis. Export growth since October 2011 (50 months) is much lower than the robust 20% average clocked during the seven year period of April 2002- March 2009. (marginally lower than the 23% rate of growth assumed for the five year period of 2015-16 to 2020-21 in the Foreign Trade Policy announced in early 2015).
Topic:
International Trade and Finance, Oil, Economic growth, Commodities, Exports, and Macroeconomics
Political Geography:
South Asia, India, and Global Markets