Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds

Joshua Aizenman and Reuven Glick

No 16392, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a model comparing the degree of asset class diversification abroad by a central bank and a sovereign wealth fund. We show that if the central bank manages its foreign asset holdings in order to meet balance of payments needs, particularly in reducing the probability of sudden stops in foreign capital inflows, it will place a high weight on holding safer foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more risky foreign assets. We also show how the diversification differences between the strategies of the bank and SWF are affected by the government's delegation of responsibilities and by various parameters of the economy, such as the volatility of equity returns and the total amount of public foreign assets available for management.

JEL-codes: E58 F15 F30 F33 (search for similar items in EconPapers)
Date: 2010-09
Note: IFM ITI
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published as in the International Journal of Central Banking. September 2014

Downloads: (external link)
http://www.nber.org/papers/w16392.pdf (application/pdf)

Related works:
Working Paper: Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds (2010)
Working Paper: Asset class diversification and delegation of responsibilities between central banks and sovereign wealth funds (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:16392

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16392

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().