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An unobserved components common cycle for Australasia? Implications for a common currency

  • Hall, Viv B
  • McDermott, C John

We use unobserved components methodology to establish an Australasian common cycle, and assess the extent to which region-specific cycles of Australian States and New Zealand are additionally important. West Australian and New Zealand region-specific growth cycles have exhibited distinctively different features, relative to the common cycle. For every Australasian region, the region-specific cycle variance dominates that of the common cycle, in contrast to findings for U.S. BEA regions and prior work for Australian States. The distinctiveness of New Zealand’s output and employment cycles is consistent with New Zealand retaining the flexibility of a separate currency and monetary policy, for periods when significant region-specific shocks occur.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/1548
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Paper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 1548.

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Date of creation: 2011
Date of revision:
Handle: RePEc:vuw:vuwecf:1548
Contact details of provider: Postal: Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand
Phone: +64 (4) 463-5353
Fax: +64 (4) 463-5014
Web page: http://www.victoria.ac.nz/sef
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  1. Aaron Drew & Viv Hall & John McDermott & Robert St. Clair, 2001. "Would adopting the Australian dollar provide superior monetary policy in New Zealand?," Reserve Bank of New Zealand Discussion Paper Series DP2001/03, Reserve Bank of New Zealand.
  2. Gerald Carlino & Keith Sill, 2001. "Regional Income Fluctuations: Common Trends And Common Cycles," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 446-456, August.
  3. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA.
  4. Dungey, Mardi & Fry, Renée, 2009. "The identification of fiscal and monetary policy in a structural VAR," Economic Modelling, Elsevier, vol. 26(6), pages 1147-1160, November.
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  7. Paul de Grauwe & Francesco Paolo Mongelli, 2005. "Endogeneities of Optimum Currency Areas: What brings Countries Sharing a Single Currency Closer together?," Working Papers de Economia (Economics Working Papers) 29, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  8. 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.
  9. Hall, Viv B. & McDermott, C. John, 2009. "The New Zealand Business Cycle," Econometric Theory, Cambridge University Press, vol. 25(04), pages 1050-1069, August.
  10. 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.
  11. Robert F. Engle & Sharon Kozicki, 1990. "Testing For Common Features," NBER Technical Working Papers 0091, National Bureau of Economic Research, Inc.
  12. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  13. Arthur Grimes, 2006. "Intra & inter-regional industry shocks: A new metric with application to Australasian currency union," New Zealand Economic Papers, Taylor & Francis Journals, vol. 40(1), pages 23-44.
  14. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  15. Watson, Mark W. & Engle, Robert F., 1983. "Alternative algorithms for the estimation of dynamic factor, mimic and varying coefficient regression models," Journal of Econometrics, Elsevier, vol. 23(3), pages 385-400, December.
  16. David Norman & Thomas Walker, 2007. "Co-Movement Of Australian State Business Cycles ," Australian Economic Papers, Wiley Blackwell, vol. 46(4), pages 360-374, December.
  17. 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.
  18. Mark D. Partridge & Dan S. Rickman, 2005. "Regional cyclical asymmetries in an optimal currency area: an analysis using US state data," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 373-397, July.
  19. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
  20. David Norman & Thomas Walker, 2004. "Co-movement of Australian State Business Cycles," RBA Research Discussion Papers rdp2004-09, Reserve Bank of Australia.
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  22. Nils Bj�Rksten & �Zer Karagedikli & Christopher Plantier & Arthur Grimes, 2004. "What Does the Taylor Rule Say About a New Zealand-Australia Currency Union?," The Economic Record, The Economic Society of Australia, vol. 80(s1), pages S34-S42, 09.
  23. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  24. Michael A. Kouparitsas, 2001. "Is the United States an optimum currency area? an empirical analysis of regional business cycles," Working Paper Series WP-01-22, Federal Reserve Bank of Chicago.
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  27. repec:fgv:epgrbe:v:47:n:2:a:1 is not listed on IDEAS
  28. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
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