After Papua New Guinea's resource boom: Is the kina overvalued?
Papua New Guinea's (PNG) resource boom has come to an end. Theory suggests that the real exchange rate (RER) should subsequently depreciate in order to restore internal and external balance. In practice, however, the imposition of foreign exchange controls has led to a large backlog in foreign...
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| Veröffentlicht in: | Asia & the Pacific policy studies 2018-01, Vol.5 (1), p.65-76 |
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| creator | Fox, Rohan Schröder, Marcel |
| description | Papua New Guinea's (PNG) resource boom has come to an end. Theory suggests that the real exchange rate (RER) should subsequently depreciate in order to restore internal and external balance. In practice, however, the imposition of foreign exchange controls has led to a large backlog in foreign currency orders suggesting that the RER is significantly overvalued. The purpose of this paper is to inform the ongoing policy debate surrounding this issue by estimating the extent to which PNG's RER is currently misaligned. Our results suggest that the kina should depreciate by about 20% to close the gap between the actual and equilibrium value of the RER. Otherwise PNG is likely to pay high economic costs as real overvaluation sustained through foreign exchange restrictions led to resource misallocation, lower economic growth, black markets, and ultimately a balance of payments crisis in many other developing countries in the past. |
| doi_str_mv | 10.1002/app5.205 |
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| source | DOAJ Directory of Open Access Journals; PAIS Index; Access via Wiley Online Library; EBSCOhost Political Science Complete; EZB-FREE-00999 freely available EZB journals; Wiley Online Library (Open Access Collection) |
| subjects | Backlog Balance of payments Black markets Costs Currency devaluation Depreciation Developing countries Economic aspects Economic development Economic growth Economic models Exchange rate policy Foreign exchange Foreign exchange controls Foreign exchange rates Government policy Imposition LDCs Markets Monetary policy Money Natural resources Payments Value |
| title | After Papua New Guinea's resource boom: Is the kina overvalued? |
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