Policy Towards Commodity Shocks in Developing Countries
22 Pages Posted: 15 Feb 2006
Date Written: August 1996
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.
JEL Classification: 011, 013, 023, 057
Suggested Citation: Suggested Citation