Exchange rate pass-through in Papua New Guinea

Abstract

This article examines the relationship between the value of the kina and the price level in Papua New Guinea. The pass-through from the exchange rate to inflation is estimated using data from 1989?2004. Pass-through is found to be higher than previously estimated and evidence is presented that pass-through has increased since the kina was floated. Although results display sensitivity to how inflation and the exchange rate are measured, the article concludes that pass-through to underlying inflation is approximately 50?60 per cent and is complete after between four and six quarters. The article also shows that exchange rate movements have been the main source of variation in inflation during the sample period. Show more