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Regional and Industry Cycles in Australasia: Implications for a Common Currency

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  • Arthur Grimes

    ()
    (Motu Economic and Public Policy Research)

Abstract

If two countries experience similar cycles, loss in monetary sovereignty following currency union may not be severe. Analysis of cyclical similarity is frequently carried out at the overall industry level, then interpreted with reference to regional industrial structures. By contrast, this paper explicitly incorporates regional industry structure into an examination of Australasian cycles. Since 1991, NZ and Australasian cycles have been highly correlated, but there is little evidence that the NZ cycle has been "caused" by Australian regional or industry cycles. We test whether the NZDAUD exchange rate has insulated NZ from Australian shocks, but find it has not played a major buffering role in response to Australian industry shocks (including mining shocks). Instead, the strongest impacts on the NZDAUD stem from the NZ cycle. An important loss of monetary sovereignty under currency union may therefore arise in response to NZ-specific shocks.

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Bibliographic Info

Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 05_04.

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Length: 42 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:mtu:wpaper:05_04

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References

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Citations

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Cited by:
  1. Robert Dixon & David Shepherd, 2009. "Regional Dimensions of the Australian Business Cycle," Department of Economics - Working Papers Series 1088, The University of Melbourne.
  2. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, EconWPA.
  3. Willie Lahari, 2011. "Assessing Business Cycle Synchronisation - Prospects for a Pacific Islands Currency Union," Working Papers 1110, University of Otago, Department of Economics, revised Oct 2011.
  4. Hall, Viv B & McDermott, C John, 2011. "An unobserved components common cycle for Australasia? Implications for a common currency," Working Paper Series 1548, Victoria University of Wellington, School of Economics and Finance.
  5. David Shepherd & Robert Dixon, 2010. "The not-so-great moderation? Evidence on changing volatility from Australian regions," Department of Economics - Working Papers Series 1090, The University of Melbourne.
  6. 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.
  7. Kumakura, Masanaga, 2006. "Trade and business cycle co-movements in Asia-Pacific," Journal of Asian Economics, Elsevier, vol. 17(4), pages 622-645, October.

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