Saturday, March 3, 2018

Welfare Gains from Market Insurance: The Case of #Mexican #Oil Price #Hedge @IMF

Over the past two decades, Mexico has hedged oil price risk through the purchase of put options.... We show that hedging increases welfare by reducing income volatility and reducing risk spreads on sovereign debt. We find welfare gains equivalent to a permanent increase in consumption of 0.44 percent with 90 percent of these gains stemming from lower risk spreads.

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