The market integration of large and small economies: Australia,the U.S., and Japan

A cross spectral comparison of the major Australian business and inflation cycles with their American and Japanese equivalents indicates a close degree of price integration between Australian and American markets and a strong quantity integration of Australian and Japanese markets. These studies suggest the operation of an international monetary transmission channel linking the Australian and American economies and a foreign trade multiplier channel transmitting Japanese disturbances to the Australian economy. The policy implications of these different forms of market integration are discussed with the emphasis placed on Australian currency exchanges.