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

Motu Working Paper No. 05-04

42 Pages Posted: 23 Jun 2006

See all articles by Arthur Grimes

Arthur Grimes

Motu Economic and Public Policy Research Trust

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

Grimes, Arthur, Regional and Industry Cycles in Australasia: Implications for a Common Currency (May 2005). Motu Working Paper No. 05-04, Available at SSRN: https://ssrn.com/abstract=910711 or http://dx.doi.org/10.2139/ssrn.910711

Arthur Grimes (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand