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Policy towards Commodity Shocks in Developing Countries
Author:
Ms. Jan Gunning null

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Mr. Paul Collier null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1996: Issue 084
Language:
English
Publication Date:
01 Aug 1996
DOI:
https://doi.org/10.5089/9781451850598.001
ISBN:
9781451850598
ISSN:
1018-5941
Pages:
22
Keywords:
WP; private sector; rate; price level; savings rate; financial asset; rate of return; asset demand; investment rate; windfall income; Income; Monetary base; Reserves accumulation; Agricultural commodities; Demand for money; Africa
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund