Monetary and exchange rate policy under remittance fluctuations
AbstractUsing data for the Philippines, I develop and estimate a heterogeneous agent model to analyze the role of monetary policy in a small open economy subject to sizable remittance fluctuations. I include “rule-of-thumb” households with no access to financial markets and test whether remittances are countercyclical and serve as an insurance mechanism against macroeconomic shocks. When evaluating the welfare implications of alternative monetary rules, I consider both an anticipated large secular increase in the trend growth of remittances and random cyclical fluctuations around this trend. In a purely deterministic framework, a nominal fixed exchange rate regime avoids a rapid real appreciation and performs better for recipient households facing an increasing trend for remittances. A flexible floating regime is preferred when unanticipated shocks driving the business cycle are also part of the picture.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 102 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/devec
Remittances; Small open economy; Exchange rate regimes;
Other versions of this item:
- Federico S. Mandelman, 2011. "Monetary and exchange rate policy under remittance fluctuations," Working Paper 2011-07, Federal Reserve Bank of Atlanta.
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
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- Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
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