Can Sovereign Wealth Funds Mitigate the Negative Impact of Volatility? - Economic Research Forum (ERF)

Can Sovereign Wealth Funds Mitigate the Negative Impact of Volatility?

Kamiar Mohaddes and Mehdi Raissi


Date:
March, 2018

NO.
31

Length:
5 pages

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

Faculty of Economics & Girton College, University of Cambridge


Mehdi Raissi


Project

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