How do Australian macroeconomics shocks transmit to New Zealand?

Abstract

New Zealand and Australia are highly interdependent in many ways. However, New Zealand is more reliant on Australia than Australia is on New Zealand. Given high economic relation, business-cycle transmission is expected to be found between these two countries. This paper analyses the shock-transmission channels, including trade, monetary policy, and exchange rates, from Australia to New Zealand over the period 1986Q1 to 2002Q2. If New Zealand and Australia trade less, have more similar monetary policies structures, or have less similar economic structures they would have stronger economy correlation. The highly integrated banking systems between Australia and New Zealand are additional avenue for shock transmission between these two countries.