In an extended Ricardian model of trade, we study the effects of improving trade deficits on relative prices, and the relation between growth rates and real exchange rates. An improvement in the trade balance induces relative wages to overshoot their long-run value, placing downward pressure on...

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...

In this paper we examine shifts in the bilateral patterns in international portfolio holdings in emerging Europe during the 2001-2008 period. In relation to the 2001-2007 pre-crisis period, we find some evidence that shifts in the geographical composition of portfolio debt liabilities reflect...

There has been considerable bilateral variation in the pattern of portfolio capital flows during the global financial crisis: for a given destination, investors from different countries adjusted their holdings to different degrees. We show that the size of the initial bilateral holding,...

The standard New Keynesian model allows the derivation of optimal monetary policy on the assumption that the economy is composed of a single sector. This paper analyses optimal policy on the basis that the economy comprises a number of different sectors. It shows that the composition of output...

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...

This paper documents the dynamic properties of the current account, trade balance and international capital flows. For this purpose, three different approaches are taken: probit, non-parametric estimation and an asymmetric autoregression. The probabilistic approach shows that, in general,...

We quantify the role of the extensive margin in the recent trade dynamics of selected countries that are running large and persistent trade imbalances. We find that the role of the extensive margin is quite substantial, although it varies in significance across the countries in the sample....

Our goal in this paper is to investigate the relation between government spending and the long-run behaviour of the Irish real exchange rate. We postulate that an increase in government consumption should be associated with real appreciation, while the impact of government investment is...

We show that the composition of government spending influences the long-run behaviour of the real exchange rate. We develop a two-sector small open economy model in which an increase in government consumption is associated with real appreciation, while an increase in government investment may...