Trans-Tasman Shocks: A Mediating Role For The NZDAUD

We examine the transmission of shocks between New Zealand and two regions of Australia, focusing on the role of the New Zealand-Australia cross exchange rate in mediating adjustment. The cross rate plays and equilibrating role in response to shocks impacting on New Zealand and to shocks impacting on the major Australian states (New South Wales and Victoria). It does not respond to shocks within the mineral-rich Australian regions (Western Australia, Queensland, Northern Territory).

Regional cycles in Australia and New Zealand are unaffected by innovations to the cross rate. We assess the implications of these results for trans-Tasman currency union.

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Citation

Grimes, Arthur. 2007. "Trans-Tasman Shocks: A Mediating Role for the NZDAUD," New Zealand Economics Papers, 41:2, pp. 237-250.