The Sectoral Effects of Exchange Rate Fluctuations – A Case Study of Colombia

Nearly all countries whose exports are highly concentrated in fuel products fix their nominal exchange rate in order to protect the livelihoods of vulnerable workers in other sectors from exchange rate changes that could be caused by variations in international fuel prices. In this paper, we assess the impact that fuel price-induced exchange rate variability has on the different sectors of fuel-exporting countries, taking Colombia as a case-study. We document the rich variety of sectoral responses to an oil-price induced appreciation in Colombia and assess different solutions to underperforming sectors.

Our analysis points to policies that improve the options available to workers in exposed sectors. We  also suggest that there may be an additional need for sectoral countercyclical macroprudential tools – those that can be used to reduce lending only to non-tradable sectors – in times of fuel price-induced exchange rate appreciation. Examples of these tools are higher loan-to-value ratios and risk weights on mortgages, on the commercial retail sector, and on personal loans, together with regulatory capital ratios, sectoral liquidity buffers, or taxes on housing sales.

By: Lavan Mahadeva

Latest Tweets from @OxfordEnergy

  • OPEC Cycles and Crude Oil Market Dynamics https://t.co/pPZC2FIpWz

    October 19th

  • A new OIES paper proposes a new model for electricity market design: the insurer-of-last-resort model intended to p… https://t.co/DCUxMNAPCV

    October 17th

  • Decarbonized Market Design: An Insurance Overlay on Energy-Only Electricity Markets https://t.co/5ABluITTPn

    October 16th

Sign up for our Newsletter

Register your email address here and we will send you notification of new publications, comment, articles etc. automatically.