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

  • Arthur Grimes

    (Motu Economic & Public Policy Research)

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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File URL: http://econwpa.repec.org/eps/mac/papers/0509/0509020.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0509020.

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Length: 42 pages
Date of creation: 12 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0509020
Note: Type of Document - pdf; pages: 42
Contact details of provider: Web page: http://econwpa.repec.org

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