Intra and Inter-Regional Industry Shocks: A New Metric with Application to Australasian Currency Union

We place regional industry structures at centre stage in currency union analysis, decomposing differences between regional and aggregate cycles into industry structure and industry cycle effects. The industry structure effect indicates whether a region's industry structure causes its cycle to deviate from the aggregate; the industry cycle effect indicates the importance of region-specific shocks in causing a deviation between cycles.

We apply the methodology to Australasia. One region, ACT, has a material industry structure effect arising from its heavy central government concentration. No other region has a material industry structure effect; their cycles differ from the aggregate due to region-specific shocks.

Citation

Grimes, Arthur. 2006. "Intra and Inter-Regional Industry Shocks: A New Metric with Application to Australasian Currency Union," New Zealand Economic Papers, 40:1, pp 23-44.