Riding the barrel: How commodity exporters can maneuver through price rapids

Master project by Martin Aragoneses, Mario Giarda, and Nikolas Schöll. Barcelona GSE Master’s in Economics

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.

Martin Aragoneses, Mario Giarda, and Nikolas Schöll

Master’s Program:

Paper Abstract:

We develop a multi-sector small open economy DSGE model with government and exogenous sources of income, in particular where the country is a commodity producer such that income from commodity exports provides a large proportion of government revenue, making international uncertainty about the future commodity price matter. The objectives of this paper are to study the differences between level shocks and uncertainty shocks to commodity prices in terms of how they affect the economy, and to analyze the convenience of different fiscal rules when we allow the income processes to have moving uncertainty.

In an application, we estimate the parameters of a stochastic volatility model for Angola and Chile and we feed them to the model to see different economic responses to uncertainty shocks. Then, we investigate whether the fiscal rule should depend on the type of income process in general. In our evaluation, we focus on the short term implications of the rule in reducing volatility, wondering if it is better to spend the resources in the present than have an insurance against the cycles? Finally, we discuss some policy implications regarding the implementation of those rules. Can the rule be tractable by the agents on the model? Are the best rules sufficiently simple to be followed by the public and finally credible as an anchor of the expectation

Presentation Slides:

Alumni Research- Macro Imbalances and Culture

At the “policy portal” VoxEU.org, Macro Policy and Financial Markets alumni (’11) and current University of Munich Ph.D. candidate Sascha Bützer co-wrote a columnabout macroeconomic imbalances and differences in culture in the Eurozone.

Since the advent of the Eurozone sovereign-debt crisis, economic commentators have drawn attention to macroeconomic imbalances within the Eurozone. This column presents evidence on the link between macroeconomic imbalances and differences in culture – or more specifically, interpersonal trust. A conservative estimatation (sic) suggests that a one standard-deviation increase in trust reduces macroeconomic imbalances by about a quarter of a standard deviation. Moreover, differences in interpersonal trust can explain a fifth of the variation in intra-Eurozone imbalances.

This is just one more example of the creative research being done in greater GSE community.

The authors have a working paper on this topic here.


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