Common Trend and Common Currency: Australiaand New Zealand

Minsoo Lee

International Journal of Business and Economics, 2003, vol. 2, issue 2, 155-165

Abstract: This note empirically examines the existence of common trend between the bilateral real exchange rates of Australia and New Zealand with two of their major trading partners, Japan and the United States, as base countries. Results from Johansen cointegration analysis show that New Zealand and Australia bilateral real exchange rates with Japan as the base country share a common stochastic trend, which can be interpreted in terms of an optimum currency area. This no longer holds should the United States be selected as the base country. This might shed light on the impact of comparative advantage in the regional trade among Australia, New Zealand, and Japan in a liberalized environment.

Keywords: common trend; optimum currency area; generalized PPP (search for similar items in EconPapers)
JEL-codes: C32 F31 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (4)

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