Abstract
Given the stock of public debt, a decision must be made about what proportion will be denominated in foreign rather than domestic currency. This note uses the Kydland‐Prescott and Barro‐Gordon time consistency framework to analyse that decision from the different viewpoints of the New Zealand Debt Management Office (in the Treasury) and of the Reserve Bank of New Zealand. It is shown why the former might choose a higher proportion of domestic debt than the Reserve Bank, and that the socially optimal choice lies between the two.
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