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Optimal currency denomination of public debt in new zealand

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  • Kerryn Fowlie
  • Julian Wright

Abstract

This paper addresses the issue of whether New Zealand's public debt obligations should be denominated in domestic or foreign currency. Using the tax-smoothing approach of Bohn (1990), we estimate optimal debt portfolios. We find that, contrary to recent Government policy and the results from a simple mean-variance analysis, the welfare-maximising policy requires that all public debt be denominated in foreign currency.

Suggested Citation

  • Kerryn Fowlie & Julian Wright, 1997. "Optimal currency denomination of public debt in new zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 31(2), pages 137-151.
    • Handle: RePEc:taf:nzecpp:v:31:y:1997:i:2:p:137-151
    DOI: 10.1080/00779959709544271
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    References listed on IDEAS

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    1. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(1), pages 139-161.
    2. Cooley, Thomas F. & Ohanian, Lee E., 1991. "The cyclical behavior of prices," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 25-60, August.
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    Cited by:

    1. Wilson Au-Yeung & Jason McDonald & Amanda Sayegh, 2006. "Australian Government Balance Sheet Management," NBER Working Papers 12302, National Bureau of Economic Research, Inc.
    2. Nick Davis, 2001. "Does Crown Financial Portfolio Composition Matter?," Treasury Working Paper Series 01/34, New Zealand Treasury.
    3. Timothy Irwin & Oscar Parkyn, 2009. "Improving the Management of the Crown’s Exposure to Risk," Treasury Working Paper Series 09/06, New Zealand Treasury.

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