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Australia-New Zealand Currency Union: A Structural Approach

Author

Listed:
  • Daisy McGregor

    () (School of Economics, University of Adelaide)

Abstract

This paper compares an Australia-New Zealand currency union to a purely fl oating exchange rate regime in the context of a structural, two-country open economy model. Micro-foundations support policy assessment by facilitating direct calculation of household welfare. Analysis focuses on changing business cycle volatilities; the role of risk is not considered. At benchmark calibration currency union is welfare reducing for both Australia and New Zealand. Sensitivity analyses reveal these results to be qualitatively robust over alternative degrees of shock correlation and shock transmission.

Suggested Citation

  • Daisy McGregor, 2010. "Australia-New Zealand Currency Union: A Structural Approach," School of Economics Working Papers 2010-18, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2010-18
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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2010-18.pdf
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    More about this item

    Keywords

    currency union; welfare analysis; exchange rate regime; Australia; New Zealand;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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