Economies in which the extraction of a non-renewable natural resource is a significant activity pose two distinctive challenges for economic policy: Revenues are likely to fluctuate because commodity prices have historically been volatile. Furthermore, the revenue from extraction is generated by depleting a finite resource and, therefore, a potential case for offsetting depletion with the accumulation of other assets. Volatility and depletion work in radically different timescales.
Managing them evidently requires distinct ‘policy clocks.’ Chile has led the world in its approach to managing volatility, but it has yet to think through the issues posed by depletion with equivalent rigor. Hence, my initial focus will be on whether Chile should be at all concerned about depletion and, if so, what an appropriate policy response might be.
Collier, P. Resource Revenue Management: Three Policy Clocks, in R. Caputo and R. Chang (eds.) Commodity Prices and Macroeconomic Policy, Central Bank of Chile, pp.245-271