Common Trend and Common Currency: Australiaand New Zealand
This note empirically examines the existence of common trend between the bilateral real exchange rates of Australia and New Zealand with two of their major trading partners, Japan and the United States, as base countries. Results from Johansen cointegration analysis show that New Zealand and Australia bilateral real exchange rates with Japan as the base country share a common stochastic trend, which can be interpreted in terms of an optimum currency area. This no longer holds should the United States be selected as the base country. This might shed light on the impact of comparative advantage in the regional trade among Australia, New Zealand, and Japan in a liberalized environment.
Volume (Year): 2 (2003)
Issue (Month): 2 (August)
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- Johansen, Soren, 1992.
"Determination of Cointegration Rank in the Presence of a Linear Trend,"
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- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. Full references (including those not matched with items on IDEAS)
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