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Optimal Currency Denomination of Public Debt in New Zealand

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  • Fowlie, Kerryn
  • Wright, Julian

Abstract

This paper addresses the issue of whether New Zealand's debt obligations should be denominated in domestic or foreign currency. Using the tax smoothing approach of Bohn (1990) we estimate optimal debt portfolios and compare these to those obtained from a simple mean-variance approach. We find that contrary to current government policy as well as the results from the mean-variance approach, welfare maximising policy is for all public debt to be denominated in foreign currency.

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Handle: RePEc:ags:canzdp:263782
DOI: 10.22004/ag.econ.263782
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