The prospect of a common currency for Australia and New Zealand has been canvassed by senior poli-ticians and bureaucrats, and has been the subject of academic debate. According to Mundell (1961), a high degree of internal labour mobility is a desirable feature of currency unions. This study looks at the extent to which long-term migration between Australia and New Zealand responds to output shocks. Estimated VAR models and panel Granger-causality tests demonstrate that shocks to relative per capita output have a significant and symmetrical impact on migration flows between Australia and New Zealand, and most of the impact is felt after about one year. Separating the shocks to Australia and New Zealand shows that 'pull' effects are more important than 'push' effects. Additionally, the trajectory of the Australian economy proves particularly influential for the choice of New Zealand emigrants. Although permanent migration responds intuitively to the state of the economy in Australia and New Zealand, the level of these migration flows is low in comparison to Australian inter-state migration; yet it is high in relation to any third country. Copyright Blackwell Publishing Ltd/University of Adelaide and Flinders University 2006.
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