Monetary Policy Transmission Mechanism in Papua New Guinea

Monetary Policy Transmission mechanisms in Papua New Guinea
 

Abstract

Monetary policy affects the economy through different transmission channels.

For central banks, understanding this process is important in assessing the

operations of monetary policy and its effectiveness. In general, five transmission

channels are discussed in economic literature. These are the interest rate, the

exchange rate, the credit, the asset price, and the expectations channels. The

first two channels are perceived to be the relevant ones regarding monetary

policy in Papua New Guinea (PNG). The empirical investigation uses Ordinary

Least Square (OLS) regression analysis to examine the transmission process in

PNG. The results suggest that changes in the kina exchange rates are

transmitted to inflation, the variable of concern, more directly than the

transmission from interest rate to inflation in the PNG economy.

Exchange Rate Passthrough in Papua New Guinea

Exchange Rate passthrough in Papua New Guinea.pdf

Abstract

This paper estimates pass-through from the exchange rate to inflation in

Papua New Guinea using 1989-2004 data. Results display sensitivity to

how inflation and the exchange rate are measured. Pass-through is found

to be higher than previously estimated and evidence is presented that

pass-through has increased since the kina was floated. The paper

concludes that pass-through to underlying inflation is approximately 50-60

percent and is complete after between four and six quarters. It also finds

that exchange rate movements have been the main source of variation in

inflation during the sample period.

Measuring Undeylying inflation in Papua New Guinea

Measuring Underlying inflation in Papua New Guinea.pdf

This paper assesses the value of the Bank of Papua New Guinea’s underlying

inflation measures: exclusion-based and trimmed mean. Results indicate that

whilst the exclusion-based measure is an unbiased estimator of CPI inflation, the

trimmed mean has a small and negative bias with respect to CPI inflation.

Evidence also suggests that when a gap emerges between CPI inflation and

underlying inflation, CPI inflation tends to adjust toward both underlying inflation

measures and also towards a constant rate of inflation. It was additionally

observed that whilst underlying inflation did not adjust toward CPI inflation, both

measures tended to adjust toward a constant rate of inflation. The paper

concludes that both underlying inflation measures are good indicators of CPI

inflation and that, at present, the trimmed mean measure is preferred over the

exclusion-based.

Abstract

Determinants of Exchange Rate in PNG: Is the Kina a commodity currency

Determinants of Exchange Rate in PNG: Is the Kina a commodity currency.pdf

Since the kina was floated in 1994 its US dollar value has undergone substantial fluctuations. This paper estimates a model of the determinants of the kina/US dollar exchange rate using quarterly data from 1995-2005. The value of the kina is found to be highly dependent on the international price of Papua New Guinea’s commodity exports. A 10 percent increase in commodity prices is estimated to cause the kina to appreciate by 4 percent immediately and by a further 6 percent in two quarters time. No other variable has a robust effect on the value of the kina. These results support the view that Papua New Guinea is highly vulnerable to external commodity price shocks.

Abstract

Research Paper on Economic Growth and Foreign Direct Investment

Foreign Direct Investment and Economic Growth in PNG.pdf

This paper uses cointegration techniques to establish whether there

is any long run relationship between foreign direct investment inflows and gross domestic product in Papua New Guinea. The paper also tests for Granger Causality between the two variables. The results show that there is a long run relationship and evidence of bi-causality between foreign direct investment inflows and gross domestic product growth. In the medium term, growth in foreign direct investment ‘Granger causes’ growth in gross domestic product. Between four and five years after the FDI inflow there is strong evidence of reverse causality.

Abstract