Cover IMF Working Papers
To Bet or Not to Bet: Copper Price Uncertainty and Investment in Chile
Author: Mr. Fabio Comelli and Mrs. Esther Perez Ruiz
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 218
Language:
English
Publication Date:
15 Nov 2016
DOI:
https://doi.org/10.5089/9781475553598.001
ISBN:
9781475553598
ISSN:
1018-5941
Pages:
23
Keywords:
WP; strike price; copper price; exchange rate; uncertainty; investment; option contracts; vector autoregression; Chile; copper price uncertainty; price movement; copper price volatility; foreign exchange option market; log copper price; investment decision; copper price forecast; USD exchange rate; terms of the probability; copper price option; reference price; volatile copper price; Metal prices; Asset prices; Exchange rates; Options; Copper; Global
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.
Download PDF (1.6 MB) Download Epub
A strand of research documents Chile’s copper dependence hence significant exposure to terms of trade shocks. Copper prices’ sharp decline and forecast uncertainty since the end of the commodity super-cycle has rekindled the debate on Chile’s adjustment capacity to external shocks. Following Malz (2014), this paper builds a time-varying measure of copper price uncertainty using options contracts. VAR analysis shows that the investment response to an uncertainty shock of average magnitude in the sample is strong and persistent: the cumulative fall in investment from trend at a one-year horizon ranges 2–5.8 percentage points; and it takes between 1½ and 2 years for investment to return to its trend level. Empirical ranges depend on alternative definitions for investment, uncertainty, and options’ maturing time.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund