IMF Working Papers

External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea

By Ryota Nakatani

December 1, 2017

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Ryota Nakatani. External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

How should resource-rich economies handle the balance of payments adjustment required after commodity price declines? This paper addresses the question theoretically by developing a simple two-period multi-sector model based on Nakatani (2016) to compare different exchange rate policies, and empirically by estimating elasticities of imports and commodity exports with respect to exchange rates using Papua New Guinean data. In the empirical part, using various econometric methods, I find the statistically significant elasticities of commodity exports to real exchange rates. In the theoretical part, by introducing the notion of a shadow exchange rate premium, I show how the rationing of foreign exchange reduces consumer welfare. Using the estimated elasticities and theoretical outcomes, I further discuss policy implications for resource-rich countries with a focus on Papua New Guinea.

Subject: Commodity price shocks, Exchange rate flexibility, Exchange rates, Exports, Foreign exchange, International trade, Prices

Keywords: Agricultural Exports, ARDL, Balance of Payments, Central bank, Cointegration, Commodity export, Commodity export data, Commodity Exporters, Commodity price shocks, Depreciation policy, ECM, Elasticities, Exchange rate, Exchange rate flexibility, Exchange rates, Export commodity, Export data, Export goods, Exports, Foreign currency, Foreign Reserve, Global, Import elasticity, Import price elasticity, Import price inflation, Intervention, Pacific Islands, Papua New Guinea, Policy option, Price inflation, Shock-induced balance of payments, TSLS, WP

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/267

  • Stock No:

    WPIEA2017267

  • ISBN:

    9781484325063

  • ISSN:

    1018-5941

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