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Macrofinancial Linkages of the Strategic Asset Allocation of Commodity-Based Sovereign Wealth Funds, Aaron Howard Clifford Brown, Michael Papaioannou, Iva Petrova

This paper analyses the links between the investment strategies of a commodity-based SWF and the macroeconomic framework of the owner country. We examine some basic macrofinancial linkages of an SWF's strategic asset allocation (SAA) strategies with regard to the government budget, monetary policy, and exchange rate movements. Based on a simple Markowitz-model framework, which integrates the specific objectives and constraints facing an SWF and the country's specific characteristics and macroeconomic vulnerabilities (especially in relation to commodity prices and prospective defined liabilities), we derive an SAA. The asset-liability methodology that is applied in the selection of an SWF SAA also allows assessing whether (i) the SAA adequately takes into account the country-specific risks and vulnerabilities, and (ii) its objectives and macrofinancial constraints are consistent. Some analytical and practical issues in determining an SAA model are also discussed, along with key effects of a financial crisis
Table Of Contents
Contents; I. Introduction; II. Institutional Arrangements of an SWF; III. Macrofinacial Linkages of the SWF Management; Figures; 1. Commodity Prices and Budget Balance; A. Government Budget; B. Monetary Policy; C. Exchange Rate Issues; D. Public Sector Balance Sheet Effects; IV. An Analytical Model for the SAA Determination of a Stabilization SWF; V. Practical Aspects of an SAA Methodology; VI. Illustrative Application; 2. Correlation between Fuel Prices and the Value of the U.S. Dollar; Tables; 1. Covariance Tests of Exchange Rates and Oil Price; 2. Covariance Tests of GDP and Oil Price
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (33 p.)
Specific Material Designation
Form Of Item

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