Template-Type: ReDIF-Paper 1.0
Author-Name: Alvin Etang Ndip
Author-Name-First: Alvin
Author-Name-Last: Etang Ndip
Author-Email: alvin.ndip@yale.edu
Author-Workplace-Name: Yale University, Economic Growth Centre
Author-Name: David Fielding
Author-Name-First: David
Author-Name-Last: Fielding
Author-Email: david.fielding@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Stephen Knowles
Author-Name-First: Stephen
Author-Name-Last: Knowles
Author-Email: stephen.knowles@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Are Survey measures of Trust Correlated with Experimental Trust? Empirical Evidence from Cameroon
Abstract: We analyze the correlation between survey-based measures of trust and behavior in the Trust Game in two villages in Cameroon. Some participants play the Trust Game with people from their own village, and others with people from a neighboring village. The survey that the participants complete includes questions about trust and social distance that reflect the experimental treatment. Some measures of survey-based trust are correlated with experimental trust, but the level of correlation is not uniform.
Length: 12 pages
Creation-Date:  2010-11
Revision-Date: 2010-11
File-URL: http://www.otago.ac.nz/economics/research/otago077143.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1016
Classification-JEL: Z13, C93, O12
Keywords: Trust Game, social capital, surveys
Handle: RePEc:otg:wpaper:1016

Template-Type: ReDIF-Paper 1.0
Author-Name: Daniel Farhat
Author-Name-First: Daniel
Author-Name-Last: Farhat
Author-Email: dan.farhat@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Virtually Science: An Agent-based Model of the Rise and Fall of Scientific Research Programs
Abstract: Is there more to Ôgood scienceÕ than explaining novel facts? Social interaction within the scientific community plays a pivotal role in defining acceptable research. This paper develops an agent-based computational model of scientific communities to explore the connection between research outcomes and the socio-cultural environment they are constructed in. Agent-to-agent interaction is added to the notion of scientific research programs (SRPs) developed by Lakatos (1969, 1970) as an important factor guiding the practice of researchers. Early in scientific inquiry, when there are many novel facts to explain, the research community is fragmented and researchers prefer to use their own talents (or innovation) when conducting research. Over time, consensus emerges in the form of a dominate SRP which utilizes intra-disciplinary approaches (or adaptation). This result illustrates the rise and fall of scientific paradigms as described by Kuhn (1970). The history of Keynesian macroeconomic theory provides colloquial support for the simulation model.
Length: 39 pages
Creation-Date:  2010-10
Revision-Date: 2010-10
File-URL: http://www.otago.ac.nz/economics/research/otago077142.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1015
Keywords: Methodology, Agent-based models, Sociology of Social Science, Scientific Research Programs
Handle: RePEc:otg:wpaper:1015

Template-Type: ReDIF-Paper 1.0
Author-Name: Syed Abul Basher
Author-Name-First: Syed Abul
Author-Name-Last: Basher
Author-Email: bashers@qcb.gov.qa
Author-Workplace-Name: Department of Research & Monetary Policy Qatar Central Bank
Author-Name: Alfred Haug
Author-Name-First: Alfred
Author-Name-Last: Haug
Author-Email: alfred.haug@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Perry Sadorsky
Author-Name-First: Perry
Author-Name-Last: Sadorsky
Author-Email: psadorsk@schulich.yorku.ca
Author-Workplace-Name: Schulich School of Business, York University
Title: Oil Prices, Exchange Rates and Emerging Stock Markets
Abstract: While two different streams of literature exist investigating 1) the relationship between oil prices and emerging market stock prices and 2) oil prices and exchange rates, relatively little is known about the relationship between oil prices, exchange rates and emerging stock markets. This paper proposes and estimates a structural vector autoregression to investigate the dynamic relationship between these variables. Impulse responses are calculated in two ways (standard, projection based methods). The model supports stylized facts. In particular, positive shocks to oil prices tend to depress emerging market stock prices and US dollar exchange rates in the short run.
Length: 36 pages
Creation-Date:  2010-09
Revision-Date: 2010-09
File-URL: http://www.otago.ac.nz/economics/research/otago077140.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1014
Classification-JEL: G15, Q43
Keywords: Emerging markets; oil prices; exchange rates
Handle: RePEc:otg:wpaper:1014

Template-Type: ReDIF-Paper 1.0
Author-Name: Alfred A. Haug
Author-Name-First: Alfred
Author-Name-Last: Haug
Author-Email: alfred.haug@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: William G. Dewald
Author-Name-First: William G.
Author-Name-Last: Dewald
Author-Email: williamgdewald@yahoo.com
Author-Workplace-Name: Department of Economics, Ohio State University
Title: Money, Output and Inflation in the Longer Term: Major Industrial Countries, 1880-2001
Abstract: We study how fluctuations in money growth correlate with fluctuations in real output growth and inflation. Using band-pass filters, we extract cycles from each time series that last 2 to 8 (business cycles) and 8 to 40 (longer-term cycles) years. We employ annual data, 1880-2001 without gaps, for eleven industrial countries. Fluctuations in money growth do not play a systematic role at business cycle frequencies. However, money growth leads or affects contemporaneously inflation, but not real output growth, in the longer run. Also, formal break tests indicate no structural changes for the longer-term money growth and inflation relationship, despite changes in policy regimes.
Length: 25 pages
Creation-Date:  2010-09
Revision-Date: 2010-09
File-URL: http://www.otago.ac.nz/economics/research/otago077139.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1013
Classification-JEL: G15, Q43
Keywords: Emerging markets; oil prices; exchange rates
Handle: RePEc:otg:wpaper:1013

Template-Type: ReDIF-Paper 1.0
Author-Name: Chris Hajzler
Author-Name-First: Chris
Author-Name-Last: Hajzler
Author-Email: chris.hajzler@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Resource-based FDI and Expropriation in Developing Economies
Abstract: Expropriation of foreign direct investment (FDI) is more likely to occur in resource extraction compared to other sectors. Despite the higher risk of expropriation in resources, countries viewed as more likely to expropriate (having expropriated in the recent past) also have a disproportionate share of FDI in the resource sector. An incomplete markets model of FDI is developed to account for this puzzle. In one sector of the economy, resources, the government manages a stock of mineral rights. The type of government regime is stochastic, with low penalty regimes facing a relatively low, exogenous cost of expropriating FDI, and the level of country risk is measured by the variation in these costs across different regimes. The key innovation of the model is that the government, before the regime type is known, is able to charge different prices to domestic and foreign investors for mineral rights. Granting cheap access increases FDI and reduces the countryÕs share of resource rents, increasing the temptation to expropriate in a relatively low penalty regime. In very high-risk countries, subsidizing resource FDI increases the total value of output by raising investment, and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high penalty one. However, a stochastic resource output price results in relatively low-risk countries restricting FDI inflows to the resource sector instead - "windfall profits" in this sector raise incentives to expropriate when prices are high, yet minimization of the ex ante risk of expropriation is preferred owing to the relatively high penalty for expropriating. These results imply a higher average share of resource-based FDI in countries most likely to expropriate, while resources account for a high share of expropriated assets compared to the sector's global share of FDI.
Length: 43 pages
Creation-Date:  2010-09
Revision-Date: 2010-09
File-URL: http://www.otago.ac.nz/economics/research/otago077108.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1012
Classification-JEL: F23, F41, F51, F59
Keywords: Expropriation, Foreign Direct Investment, Natural Resources
Handle: RePEc:otg:wpaper:1012

Template-Type: ReDIF-Paper 1.0
Author-Name: Chris Hajzler
Author-Name-First: Chris
Author-Name-Last: Hajzler
Author-Email: chris.hajzler@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006
Abstract: This paper documents expropriation of foreign direct investment (FDI) across all developing coun- tries for the 1993-2006 period, extending work by Kobrin (1980, 1984) and Minor (1994). This unique data set on worldwide expropriation between 1960 and 2006 is used to highlight several (interrelated) stylized facts. First, although expropriations have become less frequent compared to the 1970s, the number of takings has risen since the mid-1990s. Second, foreign firms are more vulnerable to expro- priation in resource-based sectors, particularly in mining and petroleum. Third, the timing of expro- priation coincides with fluctuations in mineral output price levels. Finally, when newly constructed FDI stock estimates are used to compare the sectoral distribution of FDI of recent expropriating coun- tries to that of non-expropriating countries, we find that expropriating countries have a higher average share of aggregate FDI located in resources; however, this difference is not reflected in average sector production shares. This last fact is puzzling given that natural resource-based FDI has traditionally been considered high risk.
Length: 47 pages
Creation-Date:  2010-09
Revision-Date: 2010-09
File-URL: http://www.otago.ac.nz/economics/research/otago077137.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1011
Classification-JEL: F23, F43, F51, F59
Keywords: Expropriation, Foreign Direct Investment, Natural Resources
Handle: RePEc:otg:wpaper:1011

Template-Type: ReDIF-Paper 1.0
Author-Name: Viktoria Kahui
Author-Name-First: Viktoria
Author-Name-Last: Kahui
Author-Email: viktoria.kahui@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: A bioeconomic model for HookerÕs sea lion bycatch in New Zealand
Abstract: The New Zealand Ministry of Fisheries constrains the incidental capture of HookerÕs sea lions in trawl nets of the southern squid fishery by closing the season once an upper limit on sea lion deaths is reached. The regulatory measure is in fact a limit on effort since the number of sea lion deaths is calculated from an estimated mortality rate per standard unit of effort measured in tows. During recent years vessels have been observed to increase the median time per tow suggesting the industry is expanding the capacity of an unregulated input in response. This paper formalises the current situation analytically by constructing a bioeconomic model that captures the idiosyncrasies of the squid fishery and the imposed regulation. Reducing the regulatory constraint to an isoperimetric problem can show how the current management regime may skew incentives leading to the observed increase in tow time. An extension to the current regulatory framework by introducing a spatial dimension to the estimated sea lion mortality rate may lead to more efficient behaviour. Despite retaining an upper limit on sea lion deaths, the profit maximising squid industry is given the incentive to increase effort in areas of high squid density relative to sea lion density.
Length: 27 pages
Creation-Date:  2010-09
Revision-Date: 2010-09
Number: 1010
Keywords: sea lion bycatch; squid fishery; bioeconomic model; regulation
Handle: RePEc:otg:wpaper:1010

Template-Type: ReDIF-Paper 1.0
Author-Name: David Fielding
Author-Name-First: David
Author-Name-Last: Fielding
Author-Email: david.fielding@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Inertia and Herding in Humanitarian Aid Decisions
Abstract: Using panel data for the period 1995-2008, we model the aid allocation decisions of the three largest official donors of humanitarian aid: the United States government, the United Kingdom government and the European Commission. We find evidence that donor decisions depend on both the recipientÕs need and the donorÕs economic interest, but with marked asymmetries in the relative importance of different factors across the three donors. Moreover, some donors exhibit much more inertia than others in responding to new areas of need, and some are much more influenced by the decisions of other donors. Despite being a relatively small donor, the United Kingdom is particularly influential.
Length: 32 pages
Creation-Date:  2010-08
Revision-Date: 2010-08
File-URL: http://www.otago.ac.nz/economics/research/otago077136.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1009
Classification-JEL: H59; O19
Keywords: Humanitarian aid; Dynamic panel model
Handle: RePEc:otg:wpaper:1009

Template-Type: ReDIF-Paper 1.0
Author-Name: Alvin Etang Ndip
Author-Name-First: Alvin
Author-Name-Last: Etang Ndip
Author-Email: alvin.ndip@yale.edu
Author-Workplace-Name: Yale University, Economic Growth Centre
Author-Name: David Fielding
Author-Name-First: David
Author-Name-Last: Fielding
Author-Email: david.fielding@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Stephen Knowles
Author-Name-First: Stephen
Author-Name-Last: Knowles
Author-Email: stephen.knowles@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Giving to Africa and Perceptions of Poverty
Abstract: We conduct a simple experiment in which student participants are invited to give some of the money that they have earned to an international development charity. In different treatments, participants are given different information about the country in which the donation will be spent. The information on the country includes the countryÕs income per capita and, in some treatments, different possible reasons as to why the country is poor. We find that experimental behaviour depends largely on the characteristics of the participant rather than on the treatment. The most important characteristics are the participantÕs intended major subject, level of happiness and the frequency of religious activity.
Length: 28 pages
Creation-Date:  2010-08
Revision-Date: 2010-08
File-URL: http://www.otago.ac.nz/economics/research/otago077135.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1008
Classification-JEL: A13, C91, D64
Keywords: Generosity, Charitable Donations, Altruism, Dictator Game
Handle: RePEc:otg:wpaper:1008

Template-Type: ReDIF-Paper 1.0
Author-Name: Nicholas King
Author-Name-First: Nicholas
Author-Name-Last: King
Author-Email: nicholas.king@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: P. Dorian Owen
Author-Name-First: P. Dorian
Author-Name-Last: Owen
Author-Email: dorian.owen@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Rick Audas
Author-Name-First: Rick
Author-Name-Last: Audas
Author-Email: rick.audas@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Playoff Uncertainty, Match Uncertainty and Attendance at Australian National Rugby League Matches
Abstract: This paper develops a new simulation-based measure of playoff uncertainty and investigates its contribution to modelling match attendance compared to other variants of playoff uncertainty in the existing literature. A model of match attendance that incorporates match uncertainty, playoff uncertainty, past home-team performance and other relevant control variables is fitted to Australian National Rugby League data for seasons 2004-2008 using fixed effects estimation. The results suggest that playoff uncertainty and home-team success are more important determinants of match attendance than match uncertainty. Alternative measures of playoff uncertainty based on points behind the leader, although more ad hoc, also appear able to capture the effects of playoff uncertainty.
Length: 33 pages
Creation-Date:  2010-08
Revision-Date: 2010-08
File-URL: http://www.otago.ac.nz/economics/research/otago077134.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1007
Classification-JEL: C23, L83
Keywords: playoff uncertainty, match uncertainty, sports league attendance, Australian National Rugby League, fixed effects estimation
Handle: RePEc:otg:wpaper:1007

Template-Type: ReDIF-Paper 1.0
Author-Name: Ofra Golan
Author-Name-First: Ofra
Author-Name-Last: Golan
Author-Email: ofrag@gertner.health.gov.il
Author-Workplace-Name: Gertner Institute for Epidemiology & Health Policy Research, Chaim Sheba Medical Center, Israel
Author-Name: Paul Hansen
Author-Name-First: Paul
Author-Name-Last: Hansen
Author-Email: paul.hansen@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Giora Kaplan
Author-Name-First: Giora
Author-Name-Last: Kaplan
Author-Email: giorak@gertner.health.gov.il
Author-Workplace-Name: Gertner Institute for Epidemiology & Health Policy Research, Chaim Sheba Medical Center, Israel
Author-Name: Orna Tal
Author-Name-First: Orna
Author-Name-Last: Tal
Author-Email: ornat@gertner.health.gov.il
Author-Workplace-Name: Gertner Institute for Epidemiology & Health Policy Research, Chaim Sheba Medical Center, Israel
Title: Health Technology Prioritisation: Which criteria for prioritising new technologies, and what are their relative weights? 
Abstract: Objectives: To review the criteria and ÔotherÕ considerations used internationally for prioritising new health technologies, and to demonstrate a conjoint-analysis methodology for deriving relative weights for the criteria. Methods: We searched the literature for criteria and other considerations used internationally for prioritising new technologies. For a set of criteria related to the ÔbenefitsÕ from technologies, we used a conjoint-analysis survey with a convenience sample of 74 participants to derive their weights. Results: Covering 11 countries and the US state of Oregon, we distinguished three main groups of criteria: (a) Need, appropriateness and clinical benefits; (b) Efficiency (including cost-effectiveness); and (c) Equality, solidarity and other ethical or social values. For several countries, the quality of the clinical and economic evidence and factors related to strategic issues and procedural justice respectively are also considered. The criteria in the conjoint- analysis survey and their derived weights are: ÔLives savedÕ = 0.343, ÔLife-prolongation benefitsÕ = 0.243, ÔQuality-of-life gainsÕ = 0.217, a criterion representing the availability of alternative treatments = 0.107, and ÔOther important social / ethical benefitsÕ = 0.087. Conclusions: The criteria represented a pluralistic combination of needs-based, maximising and egalitarian principles, and we demonstrated a methodology for deriving their weights based on a conjoint-analysis survey.
Length: 20 pages
Creation-Date:  2010-07
Revision-Date: 2010-07
File-URL: http://www.otago.ac.nz/economics/research/otago077133.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1006
Keywords: Health, Priorities, Technology Assessment
Handle: RePEc:otg:wpaper:1006

Template-Type: ReDIF-Paper 1.0
Author-Name: P. Dorian Owen
Author-Name-First: P. Dorian
Author-Name-Last: Owen
Author-Email: dorian.owen@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Measuring Parity in Sports Leagues with Draws: Further Comments
Abstract: This paper re-examines the calculation of the relative standard deviation (RSD) measure of competitive balance in leagues in which draws are possible outcomes. Some key conclusions emerging from the exchange between Cain and Haddock (2006) and Fort (2007) are reversed. There is no difference, for any given points assignment scheme, between the RSD for absolute points compared to percentages of points. However, variations in the points assignment that change the ratio of points for a win compared to a draw do result in different RSD values, although the numerical differences are minor.
Length: 17 pages
Creation-Date:  2010-07
Revision-Date: 2010-07
File-URL: http://www.otago.ac.nz/economics/research/otago077132.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1005
Classification-JEL: D63, L83
Keywords: sports economics, competitive balance, relative standard deviation, idealized standard deviation, draws/ties
Handle: RePEc:otg:wpaper:1005

Template-Type: ReDIF-Paper 1.0
Author-Name: Svetlana Andrianova
Author-Name-First: Svetlana
Author-Name-Last: Andrianova
Author-Email: s.andrianova@le.ac.uk
Author-Workplace-Name: University of Leicester
Author-Name: Badi H. Baltagi
Author-Name-First: Badi H.
Author-Name-Last: Baltagi
Author-Email: bbaltagi@maxwell.syr.edu
Author-Workplace-Name: Syracuse University, U.S., and University of Leicester, U.K.
Author-Name: Panicos O. Demetriades
Author-Name-First: Panicos O.
Author-Name-Last: Demetriades
Author-Email: pd28@le.ac.uk
Author-Workplace-Name: University of Leicester
Author-Name: David Fielding
Author-Name-First: David
Author-Name-Last: Fielding
Author-Email: david.fielding@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: The African Credit Trap
Abstract: We put forward a plausible explanation of African financial underdevelopment in the form of a bad credit market equilibrium. Utilising an appropriately modified IO model of banking, we show that the root of the problem could be unchecked moral hazard (strategic loan defaults) or adverse selection (a lack of good projects). We provide empirical evidence from a large panel of African banks which suggests that loan defaults are a major factor inhibiting bank lending when the quality of regulation is poor. We also find that once a threshold level of regulatory quality has been reached, improvements in the default rate or regulatory quality do not matter, providing support for our theoretical predictions.
Length: 31 pages
Creation-Date:  2010-05
Revision-Date: 2010-05
File-URL: http://www.otago.ac.nz/economics/research/otago077131.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1004
Classification-JEL: G21, O16
Keywords: Dynamic panel data, African financial under-development, African credit markets
Handle: RePEc:otg:wpaper:1004

Template-Type: ReDIF-Paper 1.0
Author-Name: David Fielding
Author-Name-First: David
Author-Name-Last: Fielding
Author-Email: david.fielding@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Author-Name: Anja Shortland
Author-Name-First: Anja
Author-Name-Last: Shortland
Author-Email: Anja.Shortland@brunel.ac.uk
Author-Workplace-Name: Department of Economics, Brunel University and DIW, Berlin
Title: What Explains Changes in the Level of Abuse Against Civilians during the Peruvian Civil War?
Abstract: Using a new monthly time-series data set, we explore the factors associated with variations in the number of civilians killed or wounded by participants in the civil war in Peru during the 1980s and 1990s. We find that an increase in the level of abuse by one side is strongly associated with subsequent increases in the level of abuse by the other. Certain types of foreign intervention have a large and statistically significant impact on the level of abuse; some types of intervention raise the level of violence, but others reduce it.
Length: 45 pages
Creation-Date:  2010-05
Revision-Date: 2010-05
File-URL: http://www.otago.ac.nz/economics/research/otago077129.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1003
Keywords: Peru, civil war, conflict, abuse against civilians
Handle: RePEc:otg:wpaper:1003

Template-Type: ReDIF-Paper 1.0
Author-Name: Daniel Farhat
Author-Name-First: Daniel
Author-Name-Last: Farhat
Author-Email: dan.farhat@otago.ac.nz
Author-Workplace-Name: Department of Economics, University of Otago
Title: Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms
Abstract: This paper examines international business cycle transmission within a two-country dynamic stochastic general equilibrium model featuring an endogenously determined trade pattern. In contrast to existing literature, this model distinguishes between non-traded final goods and traded inputs. The model incorporates capital into the production of final goods and shows that shocks to final goods production are important in replicating the empirical regularities of imports, exports, the real exchange rate and their relationship to GDP. Endogenously determined labour supply and high asset market frictions are incorporated into the model to improve the modelÕs ability to replicate labour market statistics and international co-movement.
Length: 29 pages
Creation-Date:  2010-05
Revision-Date: 2010-05
File-URL: http://www.otago.ac.nz/economics/research/otago077128.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1002
Classification-JEL: F12, F21, F41
Keywords: International Real Business Cycles, Non-traded Final Goods, Imperfect Competition, International Trade
Handle: RePEc:otg:wpaper:1002

Template-Type: ReDIF-Paper 1.0
Author-Name: Willie Lahari
Author-Name-First: Willie
Author-Name-Last: Lahari
Author-Email: wlahari@gmail.com
Author-Workplace-Name: Department of Economics, University of Otago
Title: Permanent and Transitory Shocks among Pacific Island Economies - Prospects for a Pacific Islands Currency Union
Abstract: This paper re-kindles the debate on the feasibility of a Pacific Islands currency union in view of the recent expansion and consolidation of regional strategies and agreements such as the ÔPacific PlanÕ and the Pacific Agreement on Closer Economic Relations Plus. These initiatives, including past efforts, have given limited consideration to the subject for a Pacific Islands currency union. This study exploits the optimal currency area theoretical framework and employs the Gonzalo and Ng (2001) decomposition method. This is the first time this method is used in the analysis relating to currency or monetary unions. Newly-constructed quarterly time series data are also applied. This paper investigates the dynamic effects of permanent and transitory shocks on key macroeconomic variables among Pacific Island countries (PICs). Evidence shows that the proposed union of six PICs (Fiji, PNG, Samoa, Solomon Islands, Vanuatu and Tonga) do not meet most of the preconditions for a union. However, further investigation shows evidence for the Melanesian countries (Fiji, PNG, Solomon Islands and Vanuatu) to possibly form a monetary union, preferably with the Australian dollar as the anchor currency. Nonetheless, further costs in terms of the alignment of policies by Melanesian countries are required.
Length: 36 pages
Creation-Date:  2010-02
Revision-Date: 2010-02
File-URL: http://www.otago.ac.nz/economics/research/otago0771027.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: 1001
Classification-JEL: C3, C5, E3
Keywords: Currency union, Gonzalo and Ng (2001) decomposition, Pacific Island countries
Handle: RePEc:otg:wpaper:1001