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
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