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.