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Improving the Management of the Crown’s Exposure to Risk

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  • Timothy Irwin
  • Oscar Parkyn

    ()
    (The Treasury)

Abstract

The paper discusses the management of the New Zealand Crown’s exposure to financial risk. It argues that the Crown’s aggregate exposure to risk can be effectively managed only centrally, and that, despite the difficulties of measuring risk and specifying an appropriate objective, the government should do more to measure, monitor, and control the Crown’s aggregate exposure to risk. The paper goes on to present a new model for quantifying the Crown’s exposure to risk, which integrates analysis of the government’s accounting assets and liabilities with analysis of projected tax revenue and government spending. Among other results, the model suggests that the annual volatility (standard deviation) of the Crown’s comprehensive balance sheet is at present approximately $30 billion.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2009/09-06/twp09-06.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 09/06.

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Length: 42
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:nzt:nztwps:09/06

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Phone: +64-4-472 2733
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Web page: http://www.treasury.govt.nz
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Related research

Keywords: Risk management; Crown balance sheet;

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References

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  1. Athanasios Orphanides & Simon van Norden, 2001. "The Unreliability of Output Gap Estimates in Real Time," CIRANO Working Papers, CIRANO 2001s-57, CIRANO.
  2. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1217-30, December.
  3. Kerryn Fowlie & Julian Wright, 1997. "Optimal currency denomination of public debt in new zealand," New Zealand Economic Papers, Taylor & Francis Journals, Taylor & Francis Journals, vol. 31(2), pages 137-151.
  4. Robert C. Merton & Zvi Bodie, 1992. "On the Management of Financial Guarantees," Financial Management, Financial Management Association, Financial Management Association, vol. 21(4), Winter.
  5. Buiter, Willem H, 1984. "Measuring Aspects of Fiscal and Financial Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 13, C.E.P.R. Discussion Papers.
  6. Matthew Rabin., 2000. "Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion," Economics Working Papers, University of California at Berkeley E00-287, University of California at Berkeley.
  7. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  8. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, INFORMS, vol. 39(1), pages 17-31, January.
  9. Michael Graff, 2004. "Estimates of the output gap in real time: how well have we been doing?," Reserve Bank of New Zealand Discussion Paper Series DP 2004/04, Reserve Bank of New Zealand.
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