Abstract
Since 1 January 1983, Australia (AU) and New Zealand (NZ) have been firmly committed to strong economic relations through reducing the regulatory burden on businesses, increasing competition and encouraging greater economic cooperation. Our study looking beyond 30 years of close economic ties between AU and NZ would be benefited if they go for further integration through a trans-Tasman monetary union. Therefore, we propose a single currency (SINCUR) model based on the AU, NZ and USA monthly inflation adjustment. To examine the validity of the model, the regression analysis is conducted where the SINCUR is regressed on the one month Australian dollar (AUD) and New Zealand dollar (NZD) future spot rate against U.S. dollar (USD). The regression results strongly support the appropriateness of our model to use as single currency for AUD and NZD. It is a simple model and, unlike the single currency Euro, in which a number of factors (long-term interest rate, fiscal deficit and government debt) in addition to nominal inflation are considered. The findings of this study imply that other currencies can use our model for their monetary union if they have a close economic relationship, similar to that of the trans-Tasman union.
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