Conditions are so depressed in Western Australia after the mining boom that an appropriate central bank interest rate would be zero or below, while booming NSW needs a rate above 4 per cent to rein in the bubble driving home prices sky-high.

That is the finding of an economic analysis by Dr Andrew Charlton, formerly economics advisor to prime minister Kevin Rudd and now director of the consultancy Alpha Beta.

"Western Australia is going backwards very significantly and has conditions that you would describe at a state level as being consistent with a deep recession," he told the ABC.

"In NSW, where the interest rate is too low for prevailing conditions, the impact of that is to inflate asset prices including the housing market."

The latest CoreLogic home price data highlight this divergence between fears of a Sydney bubble and the reality of a Perth correction.

While prices in Sydney surged 9.1 per cent over the past year, with Melbourne not far behind, values in Perth dropped 5.6 per cent.

Dr Charlton said this two-speed housing market is a symptom of monetary policy that is inappropriate for both extremes.

NSW is receiving more than 200 basis points of additional economic stimulus.

"That is why you are seeing house prices going up, cranes in the air, and a lot of excess froth right through the NSW economy.

"But the Reserve Bank can only apply one interest rate for the whole country and at the moment it faces a tremendous challenge of imbalance between the south-eastern states of NSW and Victoria, which are growing strongly, and Queensland and Western Australia which are contracting."

NSW and Vic boom, while Qld and WA contract apace

There are no complete official statistics on economic growth for the different states.

But using state final demand from the ABS national accounts as a rough proxy paints a stark picture of the mainland states' varying economic fortunes.

The NSW economy is growing by close to 4 per cent; Victoria by 3.2 per cent; South Australia barely growing at all at 0.5 per cent; Queensland contracting by 1.8 per cent; and WA in a severe downturn of -4.2 per cent.

"Think of a thought experiment where Western Australia could set its own interest rate rather than having one that's applied to the whole country," Dr Charlton said.

Conditions in Western Australia are consistent with an interest rate that is around zero, or even below zero.

"If you think of NSW as an economic unit with its own interest rate and its own currency, you'd be expecting an interest rate, consistent with the inflation and economic growth conditions in NSW, of above 4 per cent."

On most measures, household debt in Australia is at world record levels, and getting worse thanks to the borrowing fuelling the south-eastern housing boom.

The challenge of the two-speed economy is amplified by the formula used to divide up the GST revenue collected by the Commonwealth between the states.

"Horizontal fiscal equalisation" divvies up the revenue based on a states' service costs and ability to raise revenue, but the formula operates with a lag.

At present WA and Queensland are receiving revenue calculated when these mining states' economies were stronger, and NSW and Victoria a revenue share based on a time when the diversion of economic activity to resources-based states was squeezing their economies.