Fox, RohanSchroder, Marcel2019-04-292019-04-29http://hdl.handle.net/1885/160683Papua New Guinea's (PNG) resource boom has come to an end. Theory suggests that the real exchange rate (RER) should subsequently depreciate in order to restore internal and external balance. In practice, however, the imposition of foreign exchange controls has led to a large backlog in foreign currency orders suggesting that the RER is significantly overvalued. The purpose of this paper is to inform the ongoing policy debate surrounding this issue by estimating the extent to which PNG's RER is currently misaligned. Our results suggest that the kina should depreciate by about 20% to close the gap between the actual and equilibrium value of the RER. Otherwise PNG is likely to pay high economic costs as real overvaluation sustained through foreign exchange restrictions led to resource misallocation, lower economic growth, black markets, and ultimately a balance of payments crisis in many other developing countries in the past.12 pagesapplication/pdfen-AU© 2017 The Authors. Asia and the Pacific Policy Studies published by John Wiley & Sons Australia, Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.Natural resource boomMacroeconomic adjustmentReal exchange rate misalignmentExchange rate policyPapua New Guinea2018-0110.1002/app5.2052019-03-12