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Emerging Market Business Cycles with Remittance Fluctuations

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  • Ceyhun Bora Durdu
  • Serdar Sayan

Abstract

This paper analyzes the implications of remittance fluctuations for various macroeconomic variables and sudden stops. The paper employs a quantitative two-sector model of a small open economy with financial frictions calibrated to Mexican and Turkish economies, two major recipients, whose remittance receipts feature opposite cyclical characteristics. We find that remittances dampen business cycles in Mexico, whereas they amplify the cycles in Turkey. Their quantitative effects in the long run, approximated by the stochastic steady state, are mild. In the short run, however, remittances have quantitatively large impacts on the economy, when the economy is borrowing-constrained. This is because agents in the economy cannot adjust their precautionary wealth to sudden tightening in credit, and hence, fluctuations in remittances get magnified through an endogenous debt-deflation mechanism. The findings suggest that procyclical (or countercyclical) remittances can play a significant deepening (or mitigating) role for sudden stops.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 57 (2010)
Issue (Month): 2 (June)
Pages: 303-325

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Handle: RePEc:pal:imfstp:v:57:y:2010:i:2:p:303-325

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References

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  1. Enrique G. Mendoza, 2005. "Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies," NBER Working Papers 11691, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Federico Mandelman & Andrei Zlate, 2010. "Immigration, remittances and business cycles," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 998, Board of Governors of the Federal Reserve System (U.S.).
  2. Bentour, El Mostafa, 2013. "Should Moroccan Officials Depend on the Workers’ Remittances to Finance the Current Account Deficit?," MPRA Paper 52290, University Library of Munich, Germany, revised 01 May 2013.
  3. Giulia Bettin & Andrea Filippo Presbitero & Nikola Spatafora, 2014. "Remittances and vulnerability in developing countries," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 93, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  4. Timo Baas & Silvia Maja Melzer, 2012. "The Macroeconomic Impact of Remittances: A sending country perspective," Norface Discussion Paper Series, Norface Research Programme on Migration, Department of Economics, University College London 2012021, Norface Research Programme on Migration, Department of Economics, University College London.
  5. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, Elsevier, vol. 13(2), pages 159-183.
  6. Katarzyna Budnik, 2011. "Temporary migration in theories of international mobility of labour," Bank i Kredyt, National Bank of Poland, Economic Institute, National Bank of Poland, Economic Institute, vol. 42(6), pages 7-48.
  7. George S. Naufal & Ismail H. Genc, . "Structural Change in MENA Remittance Flows," Economics Working Papers, School of Business Administration, American University of Sharjah 07-05/2013, School of Business Administration, American University of Sharjah.
  8. Hulya Ulku, 2012. "Remitting Behaviour of Turkish Migrants: Evidence from Household Data in Germany," Urban Studies, Urban Studies Journal Limited, Urban Studies Journal Limited, vol. 49(14), pages 3139-3158, November.
  9. Hulya Ulku, 2010. "Remitting Behaviour of Turkish Migrants: Evidence from Household Data in Germany," Brooks World Poverty Institute Working Paper Series, BWPI, The University of Manchester 11510, BWPI, The University of Manchester.
  10. Federico S. Mandelman, 2011. "Monetary and exchange rate policy under remittance fluctuations," Working Paper, Federal Reserve Bank of Atlanta 2011-07, Federal Reserve Bank of Atlanta.
  11. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper, Federal Reserve Bank of Atlanta 2007-08, Federal Reserve Bank of Atlanta.

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