TY  - JOUR
AU  - Borensztein,Eduardo
AU  - Jeanne,Olivier
AU  - Sandri,Damiano
TI  - Macro-Hedging for Commodity Exporters
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15452
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15452
L1  - http://www.nber.org/papers/w15452.pdf
N1  - Author contact info:
Eduardo Borensztein
Inter-American Development Bank
1300 New York Avenue N.W.
Washington D.C. 20577
E-Mail: borensztein@iadb.org

Olivier Jeanne
Department of Economics
Johns Hopkins University
454 Mergenthaler Hall
3400 N. Charles Street
Baltimore, MD 21218
Tel: 410/516-7604
Fax: 410/516-7600
E-Mail: ojeanne@jhu.edu

Damiano Sandri
International Monetary Fund
700 19th Street N.W.
Washington D.C. 20431
E-Mail: dsandri@imf.org
AB  - 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.
ER  -