IMF Working Papers

Remittances and Macroeconomic Volatility in African Countries

Author/Editor:

Ahmat Jidoud

Publication Date:

March 2, 2015

Electronic Access:

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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. 15/49

Subject:

Africa Algeria Angola Benin Botswana Burkina Faso Burundi Business cycles Cameroon Central African Republic Chad Comoros Congo, Democratic Republic of the Congo, Republic of Djibouti Economic stabilization Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia, The General equilibrium models Ghana Guinea Guinea-Bissau Kenya Labor supply Lesotho Liberia Libyan Arab Jamahiriya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Private consumption Remittances Rwanda Senegal Seychelles Sierra Leone South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe