Abstract
This paper investigates the cross-country transmission mechanisms of monetary shocks between Australia and New Zealand within a VAR framework for the period 1985:1–2003:4. The empirical results indicate that a monetary shock in either Australia or New Zealand has real effects in the short-run in both countries however, an Australian shock generates more significant responses of most variables. Australian output is found to be significantly more sensitive than New Zealand output to monetary innovations in either country. The results also suggest that monetary innovations in a small open economy can also influence its larger trading partner.
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References
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The authors would like to thank Faik Koray and an anonymous referee for their valuable comments. The usual disclaimer applies.