Vahagn Galstyan's Homepage

"International Trade and International Relative Prices," (joint with Philip Lane), in progress
Abstract

"Country Size and the Transfer Effect," (Currently being revised.)
This paper studies how country size affects the role of the exchange rate in external adjustment. First, the impact of country size on the sensitivity of relative prices to external imbalances is explored in a standard two-country neoclassical model. Second, at the empirical level, a significant effect of external imbalances on relative prices is found. In particular, a trade surplus is associated with a deteriorating terms of trade and a declining relative price of non-traded goods, feeding into a depreciation of the real exchange rate. Estimation for G3 and non-G3 sub-samples reveals a systematic pattern in the sensitivity of relative prices to external imbalances, with the transfer effect stronger in larger countries.

Vahagn Galstyan
	Department of Economics, Trinity College Dublin and Institute for International Integration Studies Dublin 2, Ireland Tel: (353 1) 896 3485 Fax: (353 1) 677 2503 E-mail: v.galstyan (at) tcd (dot) ie
Home Research Teaching CV	Research Interests: International Macroeconomics Publications: "Fiscal Policy and International Competitiveness: Evidence from Ireland," *(joint with Philip Lane), Economic and Social Review* 40, September 2009, pp. 299-315. "The Composition of Government Spending and the Real Exchange Rate," (joint with Philip Lane), Journal of Money, Credit and Banking 41, September 2009, pp. 1233–1249. "External Imbalances and the Extensive Margin of Trade," (joint with Philip Lane), Economic Notes 37, November 2008, pp. 241–257. Working Papers: "International Trade and International Relative Prices," (joint with Philip Lane), in progress Abstract "Country Size and the Transfer Effect," (Currently being revised.)** This paper studies how country size affects the role of the exchange rate in external adjustment. First, the impact of country size on the sensitivity of relative prices to external imbalances is explored in a standard two-country neoclassical model. Second, at the empirical level, a significant effect of external imbalances on relative prices is found. In particular, a trade surplus is associated with a deteriorating terms of trade and a declining relative price of non-traded goods, feeding into a depreciation of the real exchange rate. Estimation for G3 and non-G3 sub-samples reveals a systematic pattern in the sensitivity of relative prices to external imbalances, with the transfer effect stronger in larger countries.