Remittances and Macroeconomic Volatility in African Countries
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper investigates the channels through which remittances affect macroeconomic volatility in African countries using a dynamic stochastic general equilibrium (DSGE) model augmented with financial frictions. Empirical results indicate that remittances—as a share of GDP—have a significant smoothing impact on output volatility but their impact on consumption volatility is somewhat small. Furthermore, remittances are found to absorb a substantial amount of GDP shocks in these countries. An investigation of the theoretical channels shows that the stabilization impact of remittances essentially hinges on two channels: (i) the size of the negative wealth effect on labor supply induced by remittances and, (ii) the strength of financial frictions and the ability of remittances to alleviate these frictions.
Series:
Working Paper No. 2015/049
Subject:
Balance of payments Business cycles Consumption Economic growth Financial markets Financial sector development Labor Labor supply National accounts Remittances
English
Publication Date:
March 2, 2015
ISBN/ISSN:
9781498300940/1018-5941
Stock No:
WPIEA2015049
Pages:
37
Please address any questions about this title to publications@imf.org