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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.

Suggested Citation

  • Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Working Papers 05_04, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:05_04
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    Cited by:

    1. Robert Dixon & David Shepherd, 2013. "Regional Dimensions of the Australian Business Cycle," Regional Studies, Taylor & Francis Journals, vol. 47(2), pages 264-281, February.
    2. Viv Hall & John McDermott, 2008. "An Unobserved Components Common Cycle For Australia? Implications For A Common Currency," CAMA Working Papers 2008-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, University Library of Munich, Germany.
    4. 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.
    5. Arthur Grimes, 2007. "Trans-Tasman shocks: A mediating role for the NZDAUD," New Zealand Economic Papers, Taylor & Francis Journals, vol. 41(2), pages 237-250.
    6. 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.
    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.
    8. Viv B. Hall & C. John McDermott, 2012. "Is there an unobserved components common cycle for Australasia? Implications for a common currency," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(2), pages 119-141, September.
    9. Viv Hall & John McDermott, 2008. "An Unobserved Components Common Cycle For Australia? Implications For A Common Currency," CAMA Working Papers 2008-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Emma Xiaoqin Fan & Jesus Felipe, 2005. "The diverging patterns of profitability, investment and growth of China and India, 1980-2003," CAMA Working Papers 2005-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. 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.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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