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Monetary policy transmission mechanisms and currency unions A vector error correction approach to a Trans-Tasman currency union

  • Alfred A. Haug

    ()

    (Department of Economics, York University)

  • Ozer Karagedikli

    (Economic Department of the Reserve Bank of New Zealand)

  • Satish Ranchhod

    (Economic Department of the Reserve Bank of New Zealand)

Differences in transmission mechanisms can generate asymmetric behaviour among currency union partners when they experience shocks. This has the potential to widen existing cyclical variation between members of a currency union. Our analysis suggests that the transmission mechanisms of GDP and the CPI of a monetary shock appear to be similar in Australia and New Zealand. However, there are differences in terms of the size of the responses of some variables to identical monetary policy shocks. In a currency union with a different exchange rate pattern and with different monetary policy shocks, New Zealand may experience some new challenges.

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File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/2003/Haug_2003_RBNZ.pdf
File Function: First version, 2003
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Paper provided by York University, Department of Economics in its series Working Papers with number 2003_2.

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Length: 24 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:yca:wpaper:2003_2
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