الگوهای سازگار برای شوک های قوانین و مقررات تجارت کالا: نقش سیاست نرخ ارز و ذخایر بین المللی

We analyze the way in which Latin American countries have adjusted to commodity terms of trade (CTOT) shocks in the 1970–2007 period. Specifically, we investigate the degree to which the active management of international reserves and exchange rates impacted the transmission of international price shocks to real exchange rates. We find that active reserve management not only lowers the short run impact of CTOT shocks significantly, but also affects the long run adjustment of REER, effectively lowering its volatility. We also show that relatively small increases in the average holdings of reserves by Latin American economies (to levels still well below other emerging regions current averages) would provide a policy tool as effective as a fixed exchange rate regime in insulating the economy from CTOT shocks. Reserve management could be an effective alternative to fiscal or currency policies for relatively trade closed countries and economies with relatively poor institutions or high government debt. Finally, we analyze the effects of active use of reserve accumulation aimed at smoothing REERs. The result support the view that “leaning against the wind” is potent, but more effective when intervening to support weak currencies rather than intervening to slow down the pace of real appreciation. The active reserve management reduces substantially REER volatility.

The recent (2010–2011) surge in commodity prices has brought to the forefront of policy debates the issue of terms of trade (TOT) volatility in emerging economies. An important aspect of this discussion relates to whether these price increases are permanent or transitory, and how they affect a country's degree of international competitiveness. In many countries – Brazil being a prime example – terms of trade improvements have been accompanied by a surge in capital inflows. A number of prominent policy makers have argued that the combination of significant increases in export prices and higher capital flows has generated “Dutch Disease” type situations, where acute real exchange rate appreciation has resulted in the crowding out of non-commodities tradable industries. Within this picture, emerging countries' policy makers have discussed a number of palliatives, including the imposition of controls on capital inflows, tax incentives to ailing tradable industries, and active central bank intervention in foreign exchange markets with the concomitant accumulation of international reserves. Most of these offsetting policies fall within the category of “selfinsurance.” These policy options, however, are shadowed by large opportunity costs, including forgone uses of international liquidity (e.g. in domestic investment), the loss of the independence of monetary policy (as posited by the famous “trilemma” proposition), and/or inefficiencies associated to the use of capital controls. As a growing body of literature has shown, TOT volatility in emerging countries is 3 times higher than in industrial countries. This results in real income shocks that are 3.5 times as volatile as those affecting advanced countries (see IDB, 1995, and Hausmann et al., 2006). Among emerging markets, and over the last thirty years, Latin American economies have shown an over-exposure to shocks in their terms of trade (Edwards, 2010). In this paper, we use a “commodity terms of trade” (CTOT) data set to analyze the way in which shocks to commodity prices affect the real exchange rate (REER), and the way international reserves and the exchange rate regime impact the transmission of CTOT to the REER. Our analysis focuses on the Latin American countries – the region that, as noted, has the highest volatility in CTOT – and covers the period 1970–2009. This concept of “commodity terms of trade” differs from the traditional measure in that it only includes the relative prices of a country's commodity exports and imports, weighted by their country specific GDP shares. By excluding industrial goods, and concentrating on commodity prices, we focus on the most volatile component of import and exports prices. Specifically, this commodity terms of trade data set was constructed by Ricci et al. (2008), as follows: View the MathML sourceCTOTi=Πj(Pj/MUV)Xji/Πj(Pj/MUV)Mji, where Pj is the price index for six commodity categories (food, fuels, agricultural raw materials, metals, gold, and beverages), and (View the MathML sourceXji, View the MathML sourceMji) are the average shares of commodity j in country i's exports and imports over GDP for the period 1970 through 2006, respectively. Commodity prices are deflated by the manufacturing unit value index (MUV). As Spatafora and Tytell (2009) have pointed out one of the desirable properties of CTOT is that, since View the MathML sourceXji and View the MathML sourceMji are averaged over time, the movements in CTOT are invariant to changes in export and import volumes in response to price fluctuations, and thus, isolate the impact of commodity prices on a country's terms of trade.1 In this study, we analyze the role played by international reserves on the short and intermediate-run REER dynamics generated by a CTOT shock. We also test the degree to which international reserves and the choice of exchange rate regime mitigates REER volatility associated with given CTOT shocks. Specifically, we investigate the way in which international reserves and the exchange rate regime affect the pattern of REER adjustment to transitory CTOT shocks (defined as the log deviations of current CTOT from its long run value). Our analysis focuses on both “reserve availability” – measured as stock of international reserves –, and “active reserve management”, measured as changes in international reserves. In the last section of the paper we concentrate on the effects of reserve assets managed through sovereign wealth funds (SWF). We do this by focusing on a case study: Chile and its “Copper Fund” established in the mid 1980s. Our results confirm the idea that international reserves play an important role in buffering the adjustment of the REER to CTOT shock. A higher stock of international liquidity increases the persistence effect of CTOT shocks on the REER, delaying the reversion of REER towards equilibrium and accelerating the process once REER starts to revert back. Our findings provide some validation to the idea that there are advantages, in terms of low volatility of REER, of holding sizable stocks of reserves. Moreover, we observe reserve policies of “leaning against the wind” that effectively reduce the transmission of CTOT shocks to the REER. As one may expect, our findings show that while large stock of reserves are most effective against the risk of real appreciation suffered from positive CTOT shocks, sales of reserves are not very effective against the risk of real depreciation from negative CTOT shocks. We also find that reserve accumulation is effective as a buffer against CTOT shocks under flexible regimes. As the country increases the amount of reserves, deviations of REER from equilibrium have a lower effect on the dynamics of REER. This indicates that active reserve and nominal exchange management may be closer to being substitutes rather than complements as policies against excess REER volatility. Finally, we observe an important role in our buffer story for assets managed through SWF. The rest of the paper is organized as follows: In Section 2, we discuss alternative ways in which TOT shocks affect real exchange rates both in the short and long runs. We also deal with the role of international reserves in smoothing temporary TOT shocks, under alternative exchange rate regimes. In Section 3, we analyze the evolution of TOT and international reserves in Latin America, from an international comparative perspective. We focus on volatility and show that, indeed, REER have been extremely volatile in that part of the world. Section 4 contains our econometric results from the analysis of the buffering effect from the stock of reserves. We start by presenting our empirical model and reporting the results of a number of co-integration analyses for the long run REER for our countries. We then analyze the effects of CTOT on the REER, under alternative holdings of reserves, using a pooled data set. We, then, move to individual countries analysis. In Section 5, we expand our investigation by studying the effect of CTOT shocks on the REER (again under alternative reserves holdings) in countries with “flexible” and “pegged” exchange rate regimes. Section 6 contains a number of extensions and robustness checks. We analyze the role of openness (both trade and financial), government expenditures, and quality of institutions. Section 7 contains the econometric results from our analysis of active reserve management policies and their buffering effects. In Section 8 we focus on the case of Chile, as a way of providing some light on the role played by SWF in smoothing REER fluctuations. Section 9 concludes.

Our paper identified an important role for international reserves and managed exchange rate flexibility in buffering and stabilizing the real exchange rate in the presence of large commodity terms of trade shocks. This result is consistent with the trends observed in the last two decades, where Emerging Markets converge to the middle ground of the Trilemma, opting for greater financial integration and larger exchange rate flexibility, buffered by sizable accumulation of international reserves. In principle, the buffering role of reserves may be also provided by sovereign wealth funds, though due to data limitations, we focused only on international reserves. The end of the illusive “great moderation” and the higher volatility of commodity prices suggest greater willingness of Emerging Markets to use financial buffers. Of course, international reserves and sovereign funds may provide buffer services dealing with other shocks, and we don't attempt to identify in this paper the precise share of reserves that are held to deal with any specific buffering role. By the virtue of liquidity, reserves will keep providing time-dependent precautionary and buffer services, reducing the vulnerability of emerging markets at times of turbulence. 24.