Regional and Industry Cycles in Australasia: Implications for a Common Currency
Motu Working Paper No. 05-04
42 Pages Posted: 23 Jun 2006
Date Written: May 2005
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.
JEL Classification: E32, E52, F36, R11
Suggested Citation: Suggested Citation
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