Vahagn Galstyan

Working Papers
Exchange Rates
Department of Economics
Trinity College Dublin
Dublin 2, Ireland
Tel: (353 1) 896 1597
Fax: (353 1) 677 2503
E-mail: v.galstyan (at) tcd (dot) ie

Working Papers

  • The Currency Composition of International Portfolio Assets, (with Caroline Mehigan and Rogelio Mercado), March 2017.

    Abstract: In this paper, we empirically assess the importance of gravity-type variables and measures of macroeconomic and financial volatilities in explaining portfolio holdings denominated across the main global currencies: US dollar (USD), euro (EUR), Pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF). Our findings underscore the importance of trade ties and membership of the euro area. We also find that international positions co-move with the level of macroeconomic and financial uncertainty. Importantly, we identify heterogeneous patterns at a currency level.

  • Cross-Border Banking and Macroeconomic Determinants, (with Mary Everett), February 2017.

    Abstract: This paper studies the bilateral determinants of the international asset positions of banks, and subsequent bilateral adjustment during the global financial crisis and ensuing recovery phase. We find empirical support for traditional gravity-type variables. Exploiting a comprehensive dataset of bilateral bank assets, combined with a cross-country database on capital controls and macroeconomic policies, empirical evidence is provided for the effects of macroeconomic tools on the portfolio reallocation of internationally active banks. Specifically, higher current account balances in recipient countries are associated with higher inflows in debt assets, while restrictions on asset inflows and higher central bank reserves are related to lower cross-border flows of bank investment during the crisis and post-crisis periods, with heterogeneous effects across asset type. Finally, stronger institutions in recipient countries are positively associated with the international investment of banks, with inflows to debt assets being the most sensitive asset category across the financial cycle.

  • International Investment Patterns: The Case of German Sectors, (with Adnan Velic), January 2017.

    Abstract: In this paper we exploit the newly augmented Coordinated Portfolio Investment Survey data of the IMF to study the cross-border inter-sectoral portfolio asset holdings of Germany. Our analysis reveals a significant degree of heterogeneity in German international asset positions of various holding entities. The findings of our study also suggest differential relations between portfolio holdings and a set of ``gravity-style'' factors across holder-issuer pairings of various sectors. We conclude that aggregate-level patterns in international portfolio holdings may not persist in sectoral data.

  • Public Debt and Relative Prices in a Cross-Section of Countries, (with Adnan Velic), June 2016.

    Abstract: This paper examines the effects of debt and distortionary labor taxation on the long-run behavior of the relative price of nontraded goods. At the theoretical level, in a two-sector open economy model we demonstrate that higher public debt, associated with higher taxation, contracts labor supply in both traded and nontraded goods sectors. Relative prices move inversely with relative supply shifts which, in turn, depend on relative factor intensities. At the empirical level, for a panel of advanced economies, we find statistically significant effects of public debt and taxes on the relative price of nontraded goods, with higher debt and taxes associated with higher relative prices.

  • LIML Estimation of Import Demand and Export Supply Elasticitiess, February 2016.

    Abstract: Following the seminal contribution of Feenstra (1994), I apply limited-information maximum likelihood to estimate import demand and export supply elasticities for a range of eurozone countries. The results highlight substantial inconsistencies in the parameters estimated by the methodology of Fuller (1977) relative to the parameters estimated by the methodology of Hausman et al (2012). The nature of the structural equations reveals complications generated by the limiting behavior of the parameters that can be replicated in finite samples. The results of simulations underscore substantial improvements in parameter estimates in a three-dimensional panel, suggesting that the problem of limiting behaviour can be overcome in larger dataset/panels.

  • Optimal Policy and the Sectoral Composition of Output in a New Keynesian Model, (with Michael Wycherley), March 2012.

    Abstract: This paper analyses optimal policy on the basis that the economy comprises a number of different sectors. It shows that the composition of output matters, that policy should take into account the source of shocks as well as their aggregate magnitude, and that policy tools impacting individual sectors can be significantly welfare improving. If sectoral policy is not adopted, then commitment in tax policy is important in similar ways and for similar reasons to commitment in monetary policy. With sectoral policy, commitment for tax and monetary policies ceases to be important.

  • Terms of Trade in the Medium-run, October 2011.

    Abstract: This paper contributes to empirical research on the dynamics of the terms of trade. We start by proposing a method for constructing different measures of the terms of trade. This is achieved by estimating a range of substitution elasticities using a panel data approach and highly disaggregated data on trade flows. Next, various measures of the terms of trade and trade margins are related to productivity and demand proxies. We find that domestic demand side movements are positively related to the terms of trade, while domestic productivity gains result in a deterioration of the terms of trade. Our results suggest that higher relative productivity raises the real component of exports relative to imports along the intensive margin inducing a weakening of the terms of trade.