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Reference: John Bower and Nawal Kamel, (2003). Commodity price insurance : a Keynesian idea revisited.Citable link to this page:


Commodity price insurance : a Keynesian idea revisited Subtitle: OIES paper: F8

Abstract: Keynes proposed that a ‘Commod Control’ agency be created after the Second WorldWar to stabilise spot prices of key internationally traded commodities by systematicallybuying and selling physical buffer stocks. In this paper, the creation of a new GlobalCommodity Insurer (GCI) is discussed that would operate an international CommodityPrice Insurance (CPI) scheme with the objective of protecting national governmentrevenues, spending and investment against the adverse impact of short-term deviationsin commodity prices, and especially oil prices, from their long-run equilibrium level.Crude oil is the core commodity in this scheme because energy represents 50% ofworld commodity exports, and oil price shocks have historically had a significantmacroeconomic impact. In effect the GCI would develop a new international market,which is currently missing, designed to protect governments against the risk of declinesin their fiscal revenue, and increases in the level of claims on that income especiallyfrom social programmes, brought about by short-term commodity price shocks. GCIwould take advantage of the rapid growth of trading in derivative securities in theglobal capital market since the 1980s by selling CPI insurance contracts tailored to thespecific commodity price exposure faced by national government, and offsetting theresulting price risk with a portfolio of derivative contracts of five-year or longermaturities, supplied by banks, insurers, reinsurers, investment institutions, andcommodity trading companies, with investment grade credit ratings. The differencebetween the CPI and a buffer stock or export/import control scheme is that it wouldmitigate the macro-economic shocks posed by commodity price volatility, but notattempt to control commodity prices. The cost of the CPI scheme is estimated bysimulating 5-year commodity price paths using a standard log price mean revertingmodel parameterised from an econometric analysis of commodity price time series.

Publication status:PublishedPeer Review status:Reviewed (other)Version:Publisher's version

Bibliographic Details

Publisher: Oxford Institute for Energy Studies

Publisher Website:

Issue Date: 2003

Copyright Date: 2003 Identifiers

Isbn: 1901795268

Urn: uuid:ff7b63f2-36bc-4bce-8c4a-b0369bb67193 Item Description

Type: Working/Discussion paper;

Language: en

Version: Publisher's versionKeywords: OIES commodity commodity price insurance (CPI) commodity prices crude oil financial markets Keynes price volatility stabilisation stocks Tiny URL: ora:10515


Author: John Bower - institutionUniversity of Oxford researchGroupOxford Institute for Energy Studies - - - Nawal Kamel - institutionUniv



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