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Should Commodity Exporters Peg to the Export Price?
Author(s) -
Vogel Lukas,
Hohberger Stefan,
Herz Bernhard
Publication year - 2015
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12172
Subject(s) - economics , exchange rate , credibility , monetary economics , inflation (cosmology) , commodity , inflation targeting , monetary policy , effective exchange rate , econometrics , macroeconomics , market economy , physics , theoretical physics , political science , law
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.