Working papers 2004

Number 2004/01 - Prof Viv Hall

"Central Bank Governance:Common Elements or Different Models?"

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This paper evaluates the governance performance of four small, open economy central banks. Two of these, the Reserve Bank of Australia and the Reserve Bank of New Zealand, are inflation targeting; the other two, the Hong Kong Monetary Authority and the Monetary Authority of Singapore, place major emphasis on exchange rate stability.

The four have in common, many elements necessary for excellent governance. But they also display significant differences in principle and in operating procedures, and hence in their monetary policy and corporate governance frameworks. The differences can be associated with different primary goals, different constitutional environments, single-person or "committee" decision-making models, and the central banks having proceeded at different speeds to recognise the need to commit fully to optimal transparency and accountability.

There is "no one size fits all" best practice governance framework for central banks, but key desirable principles should be adhered to and two specific suggestions on governance reporting and funding agreements should be considered.

Number 2004/02 - Prof Roger Bowden

"The Generalised value at risk admissable set: constraint consistency and portfolio outcomes"

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Number 2004/03 - Prof Roger Bowden

"Rise of the new export economy: What will it mean for NZ exchange rates, inflation and interest rates?"

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The new century ushers in a NZ economy that is alaready looking a lot different from the old. Substantial broadening of the income generation base via the export services sector has diversified international exposures and spread risks through time. The business cycle will likely become less 'stop-go' and more 'go', which will aid corporate planning. But unless the same developments lead to enhanced national saving, an outcome could be generalised expenditure inflation, reflected either in measured inflation or more probably in a real exchange rate appreciation over the longer term. Government saving and transfer expenditure, the National Super fund, the baby boomers and other influences, will all influence the macroeconomic balance, both internal and external. The probable outcome is a stronger and more stable secular real exchange rate, and chronically higher short end interest rates relative to the rest of the world.

Number 2004/04 - Prof Roger Bowden

"Derivatives, Debt and Defined Benefits in National Retirement Policy"

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As the cost of funding babyboomer retirement under defined benefit schemes has become apparent, the resulting paradigm shift to defined contribution - but undefined rewards - has left pensioners exposed to performance, credit, and time to death risk, looming ever larger as life tables lengthen. It is argued that defined benefit schemes can be designed off the back of high grade debt issuance programmes, that might be used to finance long term public asset vehicles and resolve agency problems in public retirement provision. Derivatives can be used to enhance coupons and to correctly align risk preferences as between income while still alive and bequests. Variable lifetime reinvested coupon options and annuity swaps utilise market pricing to provide unambiguous pricing benchmarks and a necessary underpinning of lifecycle planning certainty. The result is a flexible mix of private and public provision of old age income assurance, that exploits the externalities of a well-designed system of public debt.