Should Commodity Exporters Peg to the Export Price?

16 Pages Posted: 16 Jul 2015

See all articles by Lukas Vogel

Lukas Vogel

European Union - European Commission

Stefan Hohberger

European Union - JRC-Ispra, European Commision; University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth

Bernhard Herz

University of Bayreuth

Date Written: August 2015

Abstract

To account for the specific situation of commodity exporters, pegging to export prices (PEP) has been proposed elsewhere as an alternative to other conventional monetary regimes such as an exchange rate peg or inflation targeting. PEP is supposed to deliver automatic accommodation to terms‐of‐trade shocks, while retaining the credibility gain from a nominal anchor. This paper analyzes the PEP proposal in a dynamic general‐equilibrium model and compares it with a standard Taylor rule, consumer price index (CPI)‐level targeting and a nominal exchange rate peg. Judged by the degree of output stabilization, PEP performs very similar to CPI targeting for export demand as well as domestic demand shocks and underperforms in the case of shocks to the export price. The results suggest that PEP is not superior to conventional CPI targeting from a macroeconomic stabilization perspective.

Suggested Citation

Vogel, Lukas and Hohberger, Stefan and Herz, Bernhard, Should Commodity Exporters Peg to the Export Price? (August 2015). Review of Development Economics, Vol. 19, Issue 3, pp. 486-501, 2015, Available at SSRN: https://ssrn.com/abstract=2631289 or http://dx.doi.org/10.1111/rode.12172

Lukas Vogel (Contact Author)

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Stefan Hohberger

European Union - JRC-Ispra, European Commision ( email )

Via Enrico Fermi 2749, Ispra, VA
Ispra (VA), 21027
Italy

University of Bayreuth - Faculty of Law, Business and Economics ( email )

Universitätsstraße 30
Bayreuth, 95447
Germany

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Bernhard Herz

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

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