Policy towards Commodity Shocks in Developing Countries
August 1, 1996
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Summary
On the basis of a comparative study of 23 episodes involving commodity price shocks we find that both the public and private sectors typically save around half of a windfall gain resulting from a price rise. We argue that private windfalls should be left with the private sector rather than taxed. The focus of policy towards windfalls should be monetary rather than fiscal. The central bank should accommodate aggregate changes in the demand for financial assets. The private sector will initially wish to increase its claims on the central bank as it saves the windfall, but will then reduce them as portfolios are switched into real assets.
Subject: Agricultural commodities, Banking, Central banks, Commodities, Demand for money, Income, Monetary base, Money, National accounts, Reserves accumulation
Keywords: Africa, Agricultural commodities, asset demand, Demand for money, financial asset, Income, investment rate, Monetary base, price level, private sector, rate, rate of return, Reserves accumulation, savings rate, windfall income, WP
Pages:
22
Volume:
1996
DOI:
Issue:
084
Series:
Working Paper No. 1996/084
Stock No:
WPIEA0841996
ISBN:
9781451850598
ISSN:
1018-5941
