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What Does the Taylor Rule Say About a New Zealand-Australia Currency Union?

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  • NILS BJ�RKSTEN
  • �ZER KARAGEDIKLI
  • CHRISTOPHER PLANTIER
  • ARTHUR GRIMES

Abstract

It has been suggested that the New Zealand economy may have similar characteristics and face similar shocks to some Australian states, so lowering the costs of a trans-Tasman currency union. We test this, under the assumption that differences in Taylor rule-implied interest rate paths for different regions give an indication of differences in aggregate shocks that hit different economies. We compare implied Taylor rule interest rates for each of the Australian states to implied Taylor rule rates for New Zealand. We also compare them to realised 90-day rates. We find that the Taylor rule-implied rates in Australian states and in New Zealand are similarly correlated with actual Australian interest rates. Copyright � 2004 Economic Society of Australia..

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 80 (2004)
Issue (Month): s1 (09)
Pages: S34-S42

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Handle: RePEc:bla:ecorec:v:80:y:2004:i:s1:p:s34-s42

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Cited by:
  1. Willie Lahari, 2010. "Permanent and Transitory Shocks among Pacific Island Economies - Prospects for a Pacific Islands Currency Union," Working Papers 1001, University of Otago, Department of Economics, revised Feb 2010.
  2. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA.
  3. Arthur Grimes, 2005. "Intra & Inter-Regional Shocks: A New Metric with an Application to Australasian Currency Union," Working Papers 05_03, Motu Economic and Public Policy Research.
  4. Sebastian Edwards, 2006. "External Imbalances in an Advanced, Commodity-Exporting Country: The Case of New Zealand," NBER Working Papers 12620, National Bureau of Economic Research, Inc.
  5. Arthur Grimes, 2005. "New Zealand: A Typical Australasian Economy?," Economic History 0509004, EconWPA.
  6. Viv B. Hall, 2005. "An Australasian Currency, New Zealand Adopting The Us Dollar, Or An Independent Monetary Policy?," CAMA Working Papers 2005-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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