Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence
December 1, 2010
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Summary
This paper investigates the impact of workers’ remittances on equilibrium real exchange rates (ERER) in recipient economies. Using a small open economy model, it shows that standard "Dutch Disease" results of appreciation are substantially weakened or even overturned depending on: degree of openness; factor mobility between domestic sectors; counter cyclicality of remittances; the share of consumption in tradables; and the sensitivity of a country’s risk premium to remittance flows. Panel cointegration techniques on a large set of countries provide support for these analytical results, and show that ERER appreciation in response to sustained remittance flows tends to be quantitatively small.
Subject: Agricultural prices, Outward remittances, Real effective exchange rates, Real exchange rates, Remittances
Keywords: remittance flow, remittance inflow, remittance receipt, traded goods, workers' remittance, WP
Pages:
42
Volume:
2010
DOI:
Issue:
287
Series:
Working Paper No. 2010/287
Stock No:
WPIEA2010287
ISBN:
9781455210947
ISSN:
1018-5941
