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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.
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