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dc.titleCan Financial Hedging Serve Macroprudential Objectives?
dc.contributor.authorAndrian, Leandro Gaston
dc.contributor.authorLeon-Diaz, John
dc.contributor.authorRojas, Eugenio
dc.contributor.orgunitCountry Department Andean Group
dc.contributor.orgunitStrategic Planning and Monitoring Division
dc.coverageColombia
dc.date.available2025-04-30T00:04:00
dc.date.issue2025-04-30T00:04:00
dc.description.abstractWe examine hedging as a macroprudential tool in a Sudden Stops model of an economy exposed to commodity price fluctuations. We find that hedging commodity revenues yields significant welfare gains by stabilizing public expenditure, which heavily depends on these revenues. However, this added stability weakens precautionary motives and exacerbates the pecuniary externality that drives overborrowing in such models. As a result, hedging and traditional macroprudential policy act as complements rather than substitutes, with more ag- gressive hedging inducing a stronger macroprudential response. Our findings suggest that while hedging enhances stability and improves welfare, it does not eliminate the need for macroprudential regulation.
dc.format.extent56
dc.identifier.doihttp://dx.doi.org/10.18235/0013511
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Can-Financial-Hedging-Serve-Macroprudential-Objectives.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectTaxation
dc.subjectCommodity Price
dc.subjectSudden Stop
dc.subjectFinancial Crisis
dc.subjectPublic Expenditure
dc.subjectPublic Good
dc.subjectFinancial Bond
dc.subjectStandard Deviation
dc.subject.jelcodeF32 - Current Account Adjustment • Short-Term Capital Movements
dc.subject.jelcodeF41 - Open Economy Macroeconomics
dc.subject.jelcodeG13 - Contingent Pricing • Futures Pricing
dc.subject.keywordsHedging;Sudden stops;Financial Crises;Macroprudential policy
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01695
idb.operationRG-P1844
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