Energy Economics � II Jeffrey Frankel Harpel Professor, Harvard

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					The Natural Resource Curse:
 Part II -- How to Avoid It
               Jeffrey Frankel

 IMF Institute for Capacity Development, July 27, 2012
                        Part II
  Policies and institutions to avoid
pitfalls of the Natural Resource Curse
   Some that are not recommended.
       Institutions that try to suppress price volatility

   Recommended:
       Devices to hedge risk.
       Ideas to reduce macroeconomic procyclicality.
       Institutions for better governance.
 The Natural Resource Curse should not
be interpreted as a rule that commodity-
    rich countries are doomed to fail.

   The question is what policies to adopt
       to avoid the pitfalls and improve the chances of prosperity.

   A wide variety of measures have been tried
    by commodity-exporters cope with volatility.
   Some work better than others.
Many of the policies that have been
 intended to suppress commodity
 volatility do not work out so well

   Producer subsidies      Blaming derivatives
   Stockpiles              Resource nationalism
   Marketing boards        Nationalization
   Price controls          Banning foreign
   Export controls          participation
       7 recommendations
for commodity-exporting countries

        Devices to share risks

 1. Index contracts with foreign companies
     (royalties…) to the world commodity price.

 2. Hedge commodity revenues
     in options markets

 3. Link debt to the commodity price
          7 recommendations for commodity producers   continued

Countercyclical macroeconomic policy
4. Allow some currency appreciation in response
  to a commodity boom, but not a free float.
  - Accumulate some forex reserves first.
  - Raise banks’ reserve requirements, esp. on $ liabilities.

5. If the monetary anchor is to be Inflation Targeting,
  consider using as the target, in place of the CPI,
  a price measure that puts weight                   PPT
  on the export commodity (Product Price Targeting).
6. Emulate Chile: to avoid over-spending in boom times,
  allow deviations from a target surplus only
  in response to permanent commodity price rises.
            7 recommendations for commodity producers,   concluded

         Good governance institutions
7. Manage commodity funds professionally.

        Invest them abroad
       like Norway’s Pension Fund,
       Reasons:
           (1) for diversification,

           (2) to avoid cronyism in investments.

        but insulated from politics
        like Botswana’s Pula Fund.
        Professionally managed, to optimize financially.
  Elaboration on two proposals to reduce
the procyclicality of macroeconomic policy
         for commodity exporters

   To make monetary policy less
 I)
 procyclical: Product Price Targeting

    To make fiscal policy less
 II)
 procyclical: emulate Chile.
          I) The challenge of designing
      a currency regime for countries where
    terms of trade shocks dominate the cycle
   Fixing the exchange rate leads to procyclical
    monetary policy: credit expands in commodity booms.
   Floating accommodates terms of trade shocks.
       But volatility can be excessive;
       also floating does not provide a nominal anchor.

   Inflation Targeting, in terms of the CPI,
       provides a nominal anchor;
       but can react perversely to terms of trade shocks
   Needed: an anchor that accommodates trade shocks
           Product Price Targeting:
Target an index of domestic production prices                       [1]

               such as the GDP deflator

• Include export commodities in the index
  and exclude import commodities,
    • so money tightens & the currency appreciates
       when world prices of export commodities rise
        • accommodating the terms of trade --
        • not when world prices of import commodities rise.
• The CPI does it backwards:
  • It calls for appreciation when import prices rise,
  • not when export prices rise !
                                            [1] Frankel (2011, 2012).
    II) Chile’s fiscal institutions                     since 2000

   1st rule – Governments must set a budget target,
            set = 0 in 2008 under Pres. Bachelet.

   2nd rule – The target is structural:
    Deficits allowed only to the extent that
       (1) output falls short of trend, in a recession, or
       (2) the price of copper is below its trend.

   3rd rule – The trends are projected by 2 panels
    of independent experts, outside the political process.
      Result: Chile avoids the pattern of 32 other governments,
            where forecasts in booms are biased toward over-optimism.
       Chile ran surpluses in the 2003-07 boom,
            while the U.S. & Europe failed to do so.
Appendix 1 (to Part I): The Resource Curse skeptics

Appendix 2: Policies not recommended

Appendix 3: Elaboration on proposal to make
 monetary policy less procyclical – PPT, using
 GDP deflator to set annual inflation target.

Appendix 4: Elaboration on proposal to make
 fiscal policy less procyclical – emulate Chile,
 setting structural targets with independent
 fiscal forecasts
                  Which comes first,
                  oil or institutions?

   Some question the assumption that oil discoveries
    are exogenous and institutions endogenous.

   Oil wealth is not necessarily the cause
    and institutions the effect,
    rather than the other way around.
       Norman (2009): the discovery & development of oil
        is not purely exogenous, but rather is endogenous
        with respect to the efficiency of the economy.
   The important determinant is whether
  the country already has good institutions
      at the time that oil is discovered,
in which case it is put to use for the national welfare,
   instead of the welfare of an elite, on average.

          Mehlum, Moene & Torvik (2006),
          Robinson, Torvik & Verdier (2006),
          McSherry (2006),
          Smith (2007) and
          Collier & Goderis (2007).
Skeptics argue that commodity exports
           are endogenous.
   On the one hand, basic trade theory says:
    A country may show a high mineral share in exports,
    not necessarily because it has a higher endowment of
    minerals than others (absolute advantage)
    but because it does not have the ability to export
    manufactures (comparative advantage).

   This could explain negative statistical correlations
    between mineral exports and economic development,
       invalidating the common inference that minerals are bad for growth.

   Maloney   (2002) and   Wright & Czelusta   (2003, 04, 06).
          Commodity exports are endogenous,                        continued.

   On the other hand, skeptics also have plenty
    of examples where successful institutions and
    industrialization went hand in hand with rapid
    development of mineral resources.
   Countries that were able to develop efficiently
    their resource endowments as part of
    strong economy-wide growth include:
       the USA during its pre-war industrialization period
           David & Wright (1997).

       Venezuela from the 1920s to the 1970s,
        Australia since the 1960s, Norway since 1969 oil discoveries,
        Chile since adoption of a new mining code in 1983,
        Peru since a privatization program in 1992, and
        Brazil since lifting restrictions on foreign mining participation in 1995.
          Wright & Czelusta (2003, pp. 4-7, 12-13, 18-22).
        Commodity exports are endogenous,                      continued.

     Examples of countries that were equally well-
    endowed geologically but that failed to develop
    their natural resources efficiently include:
       Chile & Australia before World War I,
       and Venezuela since the 1980s.
            Hausmann (2003, p.246): “Venezuela’s growth collapse took place
             after 60 years of expansion, fueled by oil. If oil explains slow
             growth, what explains the previous fast growth?”
          Appendix 2:
 Policies that have been tried
but that are not recommended

    Producer subsidies      Blaming derivatives
    Stockpiles              Resource nationalism
    Marketing boards        Nationalization
    Price controls          Banning foreign
    Export controls          participation
        Unsuccessful policies to reduce commodity price volatility:

   1) Producer subsidies to “stabilize” prices at high levels,
       often via wasteful stockpiles & protectionist import barriers.

   Examples:
       The EU’s Common Agricultural Policy
            Bad for EU budgets, economic efficiency,
             international trade & consumer pocketbooks.

       Or fossil fuel subsidies
            which are equally distortionary & budget-busting,
            and disastrous for the environment as well.

       Or US corn-based ethanol subsidies,
            with tariffs on Brazilian sugar-based ethanol.
                       Unsuccessful policies, continued

   2) Price controls to “stabilize” prices at low levels
       Discourage investment & production.

   Example: African countries adopted
    commodity boards for coffee & cocoa at the
    time of independence.
               The original rationale: to buy the crop in years
                of excess supply and sell in years of excess demand.
               In practice the price paid to cocoa & coffee farmers
                was always below the world price.
                    As a result, production fell.
                         Microeconomic policies,    continued

   Often the goal of price controls is to shield
    consumers of staple foods & fuel from increases.
       But the artificially suppressed price
          discourages domestic supply, and
          requires rationing to domestic households.
                 Shortages & long lines can fuel political
                  rage as well as higher prices can.
                 Not to mention when the government
                  is forced by huge gaps to raise prices.

            Price controls can also require imports,
             to satisfy excess demand.
                 Then they raise the world price even more.
                     Microeconomic policies,   continued

   3) In producing countries, prices are artificially
    suppressed by means of export controls
       to insulate domestic consumers from a price rise.
          In 2008, India capped rice exports.
          Argentina did the same for wheat exports,

          as did Russia in 2010.

          India banned cotton exports in March 2012.

   Results:
       Domestic supply is discouraged.
       World prices go even higher.
    An initiative at the G20
      meetings in France
      in 2011 deserved
          to succeed:

   Producers and consuming countries in grain
    markets should cooperatively agree to refrain
    from export controls and price controls.
       The result would be lower world price volatility.
       One hopes for steps in this direction,
        perhaps working through the WTO.
        An initiative that has less merit:

   4) Attempts to blame speculation for volatility
       and so to ban derivatives markets.

   Yes, speculative bubbles sometimes hit prices.
   But in commodity markets,
       prices are more often the signal for fundamentals.
            Don’t shoot the messenger.
       Also, derivatives are useful for hedgers.
      An example of commodity speculation

   In the 1955 movie version
    of East of Eden, the legendary
    James Dean plays Cal.
   Like Cain in Genesis, he
    competes with his brother for
    the love of his father.
   Cal “goes long” in the market
    for beans, in anticipation of
    a rise in demand if the US
    enters WWI.
             An example of commodity speculation, cont.

   Sure enough, the price of beans goes sky high,
    Cal makes a bundle, and offers it to his father,
    a moralizing patriarch.

   But the father is morally offended by Cal’s speculation,
    not wanting to profit
    from others’ misfortunes,
    and tells him he will have
    to “give the money back.”
              An example of commodity speculation, cont.

   Cal has been the agent of
    Adam Smith’s famous invisible hand:
       By betting on his hunch about
        the future, he has contributed
        to upward pressure on the price
        of beans in the present,
       thereby increasing the supply so that more
        is available precisely when needed (by the Army).

   The movie even treats us to a scene where Cal
    watches the beans grow in a farmer’s field,
    something real-life speculators seldom get to see.
The overall lesson for microeconomic policy

   Attempts to prevent
    commodity prices from
    fluctuating generally fail.

   Even though enacted in the name of reducing volatility
    & income inequality, their effect is often different.
   Better to accept volatility and cope with it.
              “Resource nationalism”
   Another motive for commodity export controls:
       5) To subsidize downstream industries.
       E.g., “beneficiation” in South African diamonds
          But it didn’t make diamond-cutting competitive,
          and it hurt mining exports.

   6) Nationalization of foreign companies.
       Like price controls,
        it discourages investment.
                  “Resource nationalism”               continued

   7) Keeping out foreign companies altogether.
       But often they have the needed technical expertise.
       Examples: declining oil production in Mexico & Venezuela.

   8) Going around “locking up” resource supplies.
       China must think that this strategy will
        protect it in case of a commodity price shock.
       But global commodity markets are increasingly integrated.
            If conflict in the Persian Gulf doubles world oil prices,
             the effect will be pretty much the same
             for those who buy on the spot market and
             those who have bilateral arrangements.
    The overall lesson for
    microeconomic policy

   Attempts to prevent
    commodity prices from
    fluctuating generally fail.
   Even though enacted
    in the name of reducing volatility & income inequality,
    their effect is often different.

   Better to accept volatility and cope with it.
        For the poor: well-designed transfers,
             along the lines of Oportunidades or Bolsa Familia.
                  Appendix 3:
             Product Price Targeting
   Each of the traditional candidates for nominal
    anchor has an Achilles heel.
   The CPI anchor does not accommodate
    terms of trade changes:
       IT tightens M & appreciates when import prices rise
          not when export prices rise,
          which is backwards.

          Targeting core CPI does not much help.
6 proposed nominal targets and the Achilles heel of each:
                                         Vulnerability              Example

Gold standard             Price         Vagaries of world   1849 boom;
                         of gold          gold market      1873-96 bust
                      Price of agric.      Shocks in
Commodity                                                  Oil shocks of
                         & mineral         imported
standard                                                  1973-80, 2000-11
                          basket          commodity

Monetarist rule            M1           Velocity shocks              US 1982

Nominal income          Nominal          Measurement            Less developed
targeting                GDP               problems                countries
Fixed                     $             Appreciation of $    EM currency crises
exchange rate              (or €)             (or € )             1995-2001
                           CPI           Terms of trade          Oil shocks of
Inflation targeting
                                            shocks            1973-80, 2000-11
                                                            Professor Jeffrey Frankel
        Why is PPT better than a fixed exchange rate
               for countries with volatile export prices?   PPT

Better response to trade shocks (countercyclical):

   If the $ price of the export commodity goes up,
    the currency automatically appreciates,
       moderating the boom.

   If the $ price of the export commodity goes down,
    the currency automatically depreciates,
       moderating the downturn
       & improving the balance of payments.
     Why is PPT better than CPI-targeting
          for countries with volatile terms of trade?           PPT
Better response to trade shocks (accommodating):
   If the $ price of imported commodity goes up,
    CPI target says to tighten monetary policy
    enough to appreciate the currency.
       Wrong response.     (E.g., oil-importers in 2007-08.)
       PPT does not have this flaw .

   If the $ price of the export commodity goes up,
    PPT says to tighten money enough to appreciate.
       Right response.   (E.g., Gulf currencies in 2007-08.)
       CPI targeting does not have this advantage.
                        Empirical findings

   Simulations of 1970-2000
       Gold producers:
        Burkino Faso, Ghana, Mali, South Africa
       Other commodities:
        Ethiopia (coffee), Nigeria (oil), S.Africa (platinum)

       General finding:
        Under Product Price Targets, their currencies
        would have depreciated automatically in 1990s
        when commodity prices declined,
          perhaps avoiding messy balance of payments crises.

                        Sources: Frankel (2002, 03a, 05), Frankel & Saiki (2003)
                    Price indices
   CPI & GDP deflator each include:
       an international good
          import good in the CPI,
          export good in GDP deflator;

       And the non-traded good,
       with weights f and (1-f), respectively:

       cpi = (f)pim +(1-f)pn ,
        p = (f)px + (1-f) pn .
Estimation for each country of weights in national price index on 3 sectors:
non tradable goods, leading commodity export, & other tradable goods
                                                                       “A Comparison of Product Price
                 Non                              Other                Targeting and Other Monetary
                          Comm.         Oil                  Total     Anchor Options, for Commodity-
              Tradables                         Tradables
                          Export                                       Exporters in Latin America,"
        CPI       0.6939     0.0063      0.0431     0.2567     1.000   Economia, vol.11, 2011
ARG                                                                    (Brookings), NBER WP 16362.
        PPI       0.6939     0.0391      0.0230     0.2440     1.000
        CPI       0.5782     0.0163      0.0141     0.3914     1.000
        PPI       0.5782     0.1471      0.0235     0.2512     1.000
                                                                        Argentina is
        CPI       0.5235     0.0079      0.0608     0.4078     1.000    relatively closed;
        PPI       0.5235     0.0100      0.1334     0.3332     1.000
        CPI       0.5985     --          0.0168     0.3847     1.000    Mexico is
        PPI       0.5985     --          0.0407     0.3608     1.000    relatively open.
        CPI       0.6413     0.0002      0.0234     0.3351     1.000
        PPI       0.6413     0.1212      0.0303     0.2072     1.000     The leading export
        CPI       0.3749     --          0.0366     0.5885     1.000     commodity usually
        PPI       0.3749     --          0.0247     0.6003     1.000
        CPI       0.3929     0.1058      0.0676     0.4338     1.000
                                                                        has a higher weight
        PPI       0.3929     0.0880      0.0988     0.4204     1.000    in the country’s PPI
        CPI       0.6697     0.0114      0.0393     0.2796     1.000       than in its CPI,
        PPI       0.6697   0.040504    0.021228   0.268568     1.000        as expected.
        CPI       0.6230     0.0518      0.0357     0.2895     1.000
        PPI       0.6230     0.2234      0.1158     0.0378     1.000
                                                                           (Jamaicans don’t
* Oil is the leading commodity export.                                       eat bauxite.)
    In practice, IT proponents agree central banks
      should not tighten to offset oil price shocks

   They want focus on core CPI, excluding food & energy.
   But
        food & energy ≠ all supply shocks.

        Use of core CPI sacrifices some credibility:
             If core CPI is the explicit goal ex ante, the public feels confused.
             If it is an excuse for missing targets ex post, the public feels tricked.

        Perhaps for that reason, IT central banks apparently
         do respond to oil shocks by tightening/appreciating,
             as the following correlations suggests….
       Table 1         LAC Countries’ Current Regimes and Monthly Correlations
           LACA Countries’ Current Regimes and Monthly Correlations of Exchange Rate Changes with $ Import Price Changes
 Table 1: of Exchange Rate Changes ($/local currency)($/local currency) with Dollar Import Price Changes
                                                      Import price changes are changes in the dollar price of oil.

              Exchange Rate Regime                                   Monetary Policy                              1970-1999             2000-2008         1970-2008
ARG        Managed floating                         Monetary aggregate target                                       -0.0212               -0.0591          -0.0266
BOL        Other conventional fixed peg             Against a single currency                                       -0.0139                0.0156          -0.0057
BRA        Independently floating                   Inflation targeting framework (1999)                             0.0366                0.0961          0.0551
CHL        Independently floating                   Inflation targeting framework (1990)*                           -0.0695                0.0524          -0.0484
 CRI       Crawling pegs                            Exchange rate anchor                                             0.0123               -0.0327          0.0076
GTM        Managed floating                         Inflation targeting framework                                   -0.0029                0.2428          0.0149
GUY        Other conventional fixed peg             Monetary aggregate target                                       -0.0335                0.0119          -0.0274
HND        Other conventional fixed peg             Against a single currency                                       -0.0203               -0.0734          -0.0176
JAM        Managed floating                         Monetary aggregate target                                        0.0257                0.2672          0.0417
                                                                                                                                                                      > 0.
 NIC       Crawling pegs                            Exchange rate anchor                                            -0.0644                0.0324          -0.0412
PER        Managed floating                         Inflation targeting framework (2002)                            -0.3138                0.1895          -0.2015
PRY        Managed floating                          IMF-supported or other monetary program                         -0.023                0.3424          0.0543
 SLV       Dollar                                   Exchange rate anchor                                             0.1040                0.0530          0.0862
URY        Managed floating                         Monetary aggregate target                                        0.0438                0.1168          0.0564
Oil Exporters

COL        Managed floating                         Inflation targeting framework (1999)                            -0.0297                0.0489          0.0046
MEX        Independently floating                   Inflation targeting framework (1995)                             0.1070                0.1619          0.1086
TTO        Other conventional fixed peg             Against a single currency                                        0.0698                0.2025          0.0698
VEN        Other conventional fixed peg             Against a single currency                                       -0.0521                0.0064          -0.0382
* Chile declared an inflation target as early as 1990; but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.
 The 4 inflation-targeters in Latin America
show correlation (currency value   in $   , import prices   in $)

    >0;

    > correlation before they adopted IT;

    > correlation shown by non-IT
       Latin American oil-importing countries.
Why is the correlation between the import
 price and the currency value revealing?

   The currency of an oil importer should not
    respond to an increase in the world oil price
    by appreciating, to the extent that these
    central banks target core CPI .

   When these IT currencies respond by
    appreciating instead, it suggests that the
    central bank is tightening money to reduce
    upward pressure on headline CPI.
          Appendix IV:
        Chilean fiscal policy
   In 2000 Chile instituted its structural budget rule.
   The institution was formalized in law in 2006.
   The structural budget deficit must be zero,
       originally BS > 1% of GDP, then cut to ½ %, then 0 --
       where structural is defined by output & copper price
        equal to their long-run trend values.
   I.e., in a boom the government can only spend
    increased revenues that are deemed permanent;
    any temporary copper bonanzas must be saved.
        The crucial institutional innovation in Chile

   How has Chile avoided over-optimistic official forecasts?
       especially the historic pattern of
        over-exuberance in commodity booms?
   The estimation of the long-term path
    for GDP & the copper price
    is made by two panels of independent experts,
       and thus is insulated from political pressure & wishful thinking.

   Other countries might usefully emulate Chile’s innovation
       or in other ways delegate to independent agencies
        estimation of structural budget deficit paths.
                                   The Pay-off
   Chile’s fiscal position strengthened immediately:
       Public saving rose from 2.5 % of GDP in 2000 to 7.9 % in 2005
       allowing national saving to rise from 21 % to 24 %.
   Government debt fell sharply as a share of GDP
    and the sovereign spread gradually declined.
   By 2006, Chile achieved a sovereign debt rating of A,
            several notches ahead of Latin American peers.

   By 2007 it had become a net creditor.
   By 2010, Chile’s sovereign rating had climbed to A+,
            ahead of some advanced countries.

   => It was able to respond to the 2008-09 recession
       via fiscal expansion.
   In 2008, with copper prices spiking up,
    the government of President Bachelet had been
    under intense pressure to spend the revenue.
       She & Fin.Min.Velasco held to the rule, saving most of it.
       Their popularity ratings fell sharply.

   When the recession hit and the copper price came
    back down, the government increased spending,
    mitigating the downturn.
       Bachelet & Velasco’s popularity
        reached historic highs in 2009.
           Evolution of approval and disapproval
                 of four Chilean presidents

Presidents Patricio Aylwin, Eduardo Frei, Ricardo Lagos and Michelle Bachelet
Data: CEP, Encuesta Nacional de Opinion Publica, October 2009,   Source: Engel et al (2011).
    5 econometric findings regarding bias toward
        optimism in official budget forecasts.
    Official forecasts in a sample of 33 countries
     on average are overly optimistic, for:
       (1) budgets &
       (2) GDP .
    The bias toward optimism is:
       (3) stronger the longer the forecast horizon;
       (4) greater in booms
       (5) greater for euro governments under SGP budget rules;
 (4) The optimism in official budget forecasts is
    stronger at the 3-year horizon, stronger among
countries with budget rules, & stronger in booms.

                         Frankel, 2012, “A Solution to Fiscal Procyclicality:
                         The Structural Budget Institutions Pioneered by Chile.”
         (4) Official budget forecasts are biased
more if GDP is currently high & especially at longer horizons
     Budget balance forecast error                             as % of GDP, Full dataset
                                   (1)                        (2)                           (3)
     33 countries          One year ahead           Two years ahead                Three years

    GDP relative             0.093***                   0.258***                   0.289***
    to trend                   (0.019)                    (0.040)                     (0.063)

    Constant                    0.201                   0.649***                   1.364***
                                (0.197)                    (0.231)                    (0.348)

    Variable is lagged so that it lines up with the year 300
    Observations                   398                   in which the forecast 179 made.
               *** p<0.01    Robust standard errors in parentheses, clustered by country.
(5) Official budget forecasts are more optimistically biased
     in countries subject to a budget deficit rule (SGP)
                   Budget balance forecast error
                        as a % of GDP, Full Dataset
                           (1)        (2)           (3)                                      (4)
  33 countries           One year          Two years              One year              Two years
                          ahead             ahead                  ahead                 ahead
 SGPdummy                 0.658             0.905**                 0.407                 0.276
                          (0.398)             (0.406)               (0.355)               (0.438)

  SGP dummy *                                                     0.189**              0.497***
  (GDP - trend)                                                   (0.0828)               (0.107)

 Constant                 0.033              0.466*                 0.033                0.466*
                          (0.228)             (0.248)               (0.229)               (0.249)

 Observations               399                 300                   398                   300
     *** p<0.01, ** p<0.05, * p<0.1   Robust standard errors in parentheses, clustered by country.
             5 more econometric findings regarding bias
            toward optimism in official budget forecasts.
       (6) The key macroeconomic input for budget forecasting in
        most countries: GDP.  In Chile: the copper price.
       (7) Real copper prices revert to trend in the long run.
       But this is not always readily perceived:
         (8) 30 years of data are not enough
          to reject a random walk statistically; 200 years of data are needed.
         (9) Uncertainty (option-implied volatility) is higher
          when copper prices are toward the top of the cycle.
       (10) Chile’s official forecasts are not overly optimistic.
        It has apparently avoided the problem of forecasts
        that unrealistically extrapolate in boom times.
               In sum, institutions recommended
             to make fiscal policy less procyclical:
   Official growth & budget forecasts tend toward wishful thinking :
       unrealistic extrapolation of booms 3 years into the future.

   The bias is worse among the European countries
    supposedly subject to the budget rules of the SGP,
       presumably because government forecasters feel pressured
        to announce they are on track to meet budget targets even if they are not.

   Chile is not subject to the same bias toward over-optimism in
    forecasts of the budget, growth, or the all-important copper price.
   The key innovation that has allowed Chile
    to achieve countercyclical fiscal policy:
       not just a structural budget rule in itself,
       but rather the regime that entrusts to two panels of experts
        estimation of the long-run trends of copper prices & GDP.
                  Application to other countries
   Any country could adopt the Chilean mechanism,
       not just commodity-exporters.

   Suggestion: give the panels more institutional independence
       as is familiar from central banking:
            requirements for professional qualifications of the members
            and laws protecting them from being fired.

   Open questions:
       Are the budget rules to be interpreted as ex ante or ex post?
       How much of the structural budget calculations are
        to be delegated to the independent panels of experts?
            Minimalist approach: they compute only 10-year moving averages.
       Can one guard against subversion of the institutions (CBO) ?
                              References by the author
   Project Syndicate,
        “Escaping the Oil Curse,” Dec.9, 2011.
        "Barrels, Bushels & Bonds: How Commodity Exporters Can Hedge Volatility," Oct.17, 2011.
   “The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions,”
    2012, Commodity Price Volatility and Inclusive Growth in Low-Income Countries , R.Arezki & Z.Min, eds..
    HKS RWP12-014. High Level Seminar, IMF Annual Meetings, DC, Sept.2011.

   "The Curse: Why Natural Resources Are Not Always a Good Thing,”
    Milken Institute Review, vol.13, 4th quarter 2011.
   “The Natural Resource Curse: A Survey,” 2012,                 Chapter 2 in Beyond the Resource Curse,
    B.Shaffer & T. Ziyadov, eds. (U.Penn. Press); proofs & notes; Summary. CID WP195, 2011.

   “How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?”
    Natural Resources, Finance & Development, R.Arezki, T.Gylfason & A.Sy, eds. (IMF), 2011. HKS RWP 11-015.

   “On Graduation from Procyclicality,” 2012, with C.Végh & G.Vuletin; J. Dev. Economics.
   “Chile’s Solution to Fiscal Procyclicality,”         2012, Transitions blog, Foreign Policy.

   “A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by
    Chile,” in Fiscal Policy and Macroeconomic Performance, 2012. Central Bank of Chile WP 604, 2011.
   "Product Price Targeting -- A New Improved Way of Inflation Targeting," in MAS
    Monetary Review Vol.XI, issue 1, April 2012 (Monetary Authority of Singapore).

   “A Comparison of Product Price Targeting and Other Monetary Anchor Options, for
    Commodity-Exporters in Latin America," Economia, vol.11, 2011 (Brookings), NBER WP 16362.

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