This Selected Issues paper examines financial linkages and the correlation between Australian and U.S. output. It shows that the financial linkages have played an important role in conveying shocks from the United States to the Australian economy, and that these have become increasingly important in the 1990s. The paper examines income and output convergence across Australian states. It also examines the role of the terms of trade and different commodity prices in explaining the real exchange rate.
The developing economies of the Asia Pacific Economic Cooperation (APEC) have been the recipients of a considerable volume of capital inflows in the 1990s. Given the increased integration of capital markets, it is not surprising that monetary control became more difficult for many developing APEC economies. Formulating an appropriate policy response has naturally been important. The three papers that make up this Occasional Paper each examine different aspects of these issues.
During 1999 and into the first half of 2000, global financial conditions generally improved in tandem with the strong rebound in the global economy. Following the most severe market turbulence—especially for emerging markets in the postwar period—entailing a succession of regional crises that enveloped the major financial markets, credit concerns have eased and global investors became more willing to engage in risk taking. This was especially evident in their rush to invest in technology-related companies that underpinned the “new economy.”