Optimal currency denomination of public debt in new zealand

Kerryn Fowlie and Julian Wright

New Zealand Economic Papers, 1997, vol. 31, issue 2, 137-151

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.

Date: 1997
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DOI: 10.1080/00779959709544271

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