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 fun...
| Main Author: | |
|---|---|
| Format: | Brief |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/1999/02/717482/managing-terms-trade-volatility http://hdl.handle.net/10986/11495 |
| id |
okr-10986-11495 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-114952021-06-14T11:03:13Z Managing Terms of Trade Volatility Hausmann, Ricardo 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 SOLVENCY STABILIZATION TERMS OF TRADE TERMS OF TRADE SHOCKS TRANSPARENCY VULNERABILITY 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. 2012-08-13T15:13:32Z 2012-08-13T15:13:32Z 1999-02 http://documents.worldbank.org/curated/en/1999/02/717482/managing-terms-trade-volatility http://hdl.handle.net/10986/11495 English PREM Notes; No. 18 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Brief Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
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 SOLVENCY STABILIZATION TERMS OF TRADE TERMS OF TRADE SHOCKS TRANSPARENCY VULNERABILITY |
| spellingShingle |
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 SOLVENCY STABILIZATION TERMS OF TRADE TERMS OF TRADE SHOCKS TRANSPARENCY VULNERABILITY Hausmann, Ricardo Managing Terms of Trade Volatility |
| relation |
PREM Notes; No. 18 |
| description |
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. |
| format |
Publications & Research :: Brief |
| author |
Hausmann, Ricardo |
| author_facet |
Hausmann, Ricardo |
| author_sort |
Hausmann, Ricardo |
| title |
Managing Terms of Trade Volatility |
| title_short |
Managing Terms of Trade Volatility |
| title_full |
Managing Terms of Trade Volatility |
| title_fullStr |
Managing Terms of Trade Volatility |
| title_full_unstemmed |
Managing Terms of Trade Volatility |
| title_sort |
managing terms of trade volatility |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/1999/02/717482/managing-terms-trade-volatility http://hdl.handle.net/10986/11495 |
| _version_ |
1764416940432949248 |