RIEB Discussion Paper Series No.2020-05

RIEB Discussion Paper Series No.2021-22

Title

Effect of Sovereign Wealth Funds in Commodity-Exporting Economies when Commodity Prices Affect Interest Spreads

Abstract

We reconsider the role of a sovereign wealth fund in commodity-exporting economies facing recent volatile fluctuations of commodity prices due to the COVID-19 shock. We examine the welfare-improving effect of a sovereign wealth fund from the new perspective of the link between commodity prices and interest rate spreads, which is unique to emerging economies. We show that a sovereign wealth fund becomes more effective in improving welfare for commodity-exporting economies with a stronger link between their commodity prices and interest rate spreads.

Keywords

Sovereign wealth fund; Commodity prices; Interest rate spreads; DSGE model; Financial frictions; Emerging economies

JEL Classification

E32, E44, F32, O20, Q48

Inquiries

Shigeto KITANO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Kenya TAKAKU
Faculty of International Studies, Hiroshima City University