Intra & inter‐regional industry shocks: A new metric with application to Australasian currency union

Abstract

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.

Notes

Arthur Grimes, Motu Economic & Public Policy Research, PO Box 24390, Wellington, New Zealand, [email protected]

Motu Economic & Public Policy Research & University of Waikato. The research programme, of which this paper forms a part, is funded through a grant from the Marsden Fund of the Royal Society of New Zealand. An earlier version of this paper was presented at the AEA conference, Philadelphia, January 2005. I thank Reuven Glick, participants at a Reserve Bank of New Zealand seminar, two referees and the editor of this journal for valuable comments on earlier versions. I am solely responsible for the final content.