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

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  • Ryota Nakatani

Abstract

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.

Suggested Citation

  • Ryota Nakatani, 2017. "External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea," IMF Working Papers 17/267, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/267
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    Cited by:

    1. Nakatani, Ryota, 2018. "Real and financial shocks, exchange rate regimes and the probability of a currency crisis," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 60-73.
    2. repec:eee:asieco:v:57:y:2018:i:c:p:13-35 is not listed on IDEAS
    3. Nakatani, Ryota, 2018. "Output Costs of Currency Crises: Shocks, Policies and Cycles," MPRA Paper 83549, University Library of Munich, Germany.
    4. Ryota Nakatani, 2017. "External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea," IMF Working Papers 17/267, International Monetary Fund.
    5. repec:mes:emfitr:v:53:y:2017:i:11:p:2545-2561 is not listed on IDEAS
    6. repec:eee:ecofin:v:42:y:2017:i:c:p:132-143 is not listed on IDEAS

    More about this item

    Keywords

    Balance of payments adjustment; Exchange rate policy; Foreign exchange; Agricultural exports; Commodities; Papua New Guinea; Commodity Exporters; Elasticities; Foreign Reserve; Invervention; Cointegration; ECM; ARDL; TSLS; Intervention; Open Economy Macroeconomics; Agriculture in International Trade;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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