Policy Briefs
Can Sovereign Wealth Funds Mitigate the Negative Impact of Volatility?
No.
31
Date
March, 2018
Topic
E. Macroeconomics and Monetary Economics
In a nutshell
- Commodity price volatility harms economic growth of natural resource dependent countries, which tends to result in disappointing long-term economic performance for these countries.
- These negative effects operate through lower accumulation of physical capital and lower TFP.
- Having a Sovereign Wealth Fund can mitigate such negative growth effects, especially in countries that enjoy higher-quality institutions (and hence less pro-cyclical fiscal policies).
- Our results have strong policy implications, including better management of volatility in resource income by setting up forward-looking institutions, and improvements in macroeconomic policy frameworks.
Research Fellows
Kamiar Mohaddes
Macroeconomist, Judge Business School, University of Cambridge
Authors
Mehdi Raissi
Senior Economist, International Monetary Fund