Alvaro Boitier

Working Papers

Purchase Obligations and Hedging – joint with Brian Pustilnik 

Commodity price shocks have negative consequences for developed economies that rely heavily on imported materials. Consequently, firms employ risk-management instruments to reduce their exposure. In this paper we study how the use of supply contracts by firms can shape the transmission of commodity price shocks to aggregate variables. We focus on purchase obligations, which are supply contracts with fixed prices for the delivery of goods in future periods. We rely on a novel dataset to document two empirical findings. First, we find a large exposure reduction to commodity price risk for firms using these contracts; our estimates suggest a reduction of about 10% to 45% compared with non-users. Second, sector output and labor compensation have a smaller negative correlation with commodity prices when firms trade larger contracts. We assess the aggregate quantitative role of these contracts by introducing and calibrating a tractable general equilibrium model. We measure the contribution of purchase obligations to dampening the aggregate transmission of commodity price shocks by constructing a counterfactual in which firms are not allowed to trade these contracts. Our results show that when firms engage in purchase obligations, real consumption has a relative response of 4% less to a 10% commodity price shock.

Presentations: TADC (LBS), YES (Yale), IAESEGSCIFPHDMMMF2022

Manufacturing firms depend on commodity inputs for their production processes, leading them to engage in hedging strategies to mitigate  the impact of commodity price fluctuations. In particular, they regularly employ supply contracts featuring fixed prices, also known as purchase obligations in the literature. This paper documents a weak correlation between financial hedging and net worth for publicly traded companies in the manufacturing sector in the United States. These findings remain robust even when accounting for various firm characteristics, including size and commodity exposure. Notably, this empirical evidence challenges contemporary corporate hedging theories that emphasize collateral as a crucial factor influencing hedging decisions.

Work in Progress

Foreign Exchange and Inequality – joint with Livio Stracca 

Globalization, Markups and the Labor Share