Central Bank issues 2 economic papers

TWO working papers that determine the play of exchange rates, foreign direct investment and economic growths in Papua New Guinea have been released by the Central Banks.
They were released by Bank of PNG (BPNG) governor Loi Bakani yesterday.
The first paper titled  Determinants of exchange tate in PNG: Is the kina a commodity currency? estimates a model of the determinants of the kina-US dollar exchange rate using quarterly data from 1995-2005.
The value of the kina is found to be highly dependent on the international price of PNG’s commodity exports.
A 10% increase in commodity prices is estimated to cause the kina to appreciate by 4% immediately and by a further 6% in the following two quarters.
These results support the view that PNG is highly vulnerable to external commodity price shocks, and is (or can be) regarded as a commodity currency.
The authors are Gae Kauzi, a research coordinator with BPNG’s economics department, and now manager for research, and Thomas Sampson, an Overseas Development Institute Fellow BPNG.
Then second paper Foreign direct investment and economic growth in PNG uses co-integration techniques to establish whether there is any long-run relationship between foreign direct investment (FDI) inflows and gross domestic product (GDP).
The paper also tests for Granger Causality between the two variables.
The results show that there is a long-run relationship and evidence of bi-causality between FDI inflows and GDP growth.
In the medium term, growth in FDI is partly responsible for the growth in GDP.