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

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