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Macrofinancial Linkages of the Strategic Asset Allocation of Commodity-Based Sovereign Wealth Funds

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  • International Monetary Fund
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    Abstract

    This paper analyses the links between the investment strategies of a commodity-based SWF and the macroeconomic framework of the owner country. We examine some basic macrofinancial linkages of an SWF''s strategic asset allocation (SAA) strategies with regard to the government budget, monetary policy, and exchange rate movements. Based on a simple Markowitz-model framework, which integrates the specific objectives and constraints facing an SWF and the country''s specific characteristics and macroeconomic vulnerabilities (especially in relation to commodity prices and prospective defined liabilities), we derive an SAA. The asset-liability methodology that is applied in the selection of an SWF SAA also allows assessing whether (i) the SAA adequately takes into account the country-specific risks and vulnerabilities, and (ii) its objectives and macrofinancial constraints are consistent. Some analytical and practical issues in determining an SAA model are also discussed, along with key effects of a financial crisis.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/9.

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    Length: 32
    Date of creation: 01 Jan 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/9

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    Related research

    Keywords: Sovereign wealth funds; Access to capital markets; Capital flows; Corporate sector; Credit risk; Emerging markets; External financing; Risk management; Sovereign debt; Asset management; Budgets; Commodity prices; Economic models; Exchange rate regimes; Investment policy; Resource allocation; strategic asset allocation; macrofinancial linkages; bonds; government bonds; correlation; covariance; standard deviation; financial assets; correlations; optimization; corporate bonds; equation; cash flows; minimization; bond returns; probability; normal distribution; statistic; financial markets; present value; flexible exchange rate; corporate bond returns; sovereign bonds; international capital; statistics; hedge; domestic capital; financial statistics; government bond yields; stock prices; forecasting; stock market; international financial statistics; mathematics; international capital markets; international reserves; currency of denomination; domestic capital market; integral;

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    References

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    1. Rodrigo O. Valdés & Eduardo Engel, 2000. "Optimal Fiscal Strategy for Oil Exporting Countries," IMF Working Papers 00/118, International Monetary Fund.
    2. Peter Kunzel & Cornelia Hammer & Iva Petrova, 2008. "Sovereign Wealth Funds," IMF Working Papers 08/254, International Monetary Fund.
    3. Christian B. Mulder & Amadou N. R. Sy & Yinqiu Lu & Udaibir S. Das, 2009. "Setting Up a Sovereign Wealth Fund," IMF Working Papers 09/179, International Monetary Fund.
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    Cited by:
    1. Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.

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