Remittances, Inflation and Exchange Rate Regimes in Small Open Economies
AbstractRemittances are private monetary transfers yet the rapidly growing literature on the subject seems to forget their monetary nature and thus ignore the role that exchange rate regimes play in determining the effect remittances have on a recipient economy. This paper uses a theoretical model and panel vector autoregression techniques to explore the role exchange rate regimes play in understanding the effect of remittances. The analysis considers yearly and quarterly data for seven Latin American countries. Our theoretical model predicts that remittances should be inflationary and generate an increase in the domestic money supply under a fixed regime but deflationary and generate no change in the money supply under a flexible regime. These differences are borne out in the data. This adds to our understanding of the true effect of remittances on economies and suggests results existent in the literature that do not control for regimes may be biased.
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Bibliographic InfoPaper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2008-03.
Date of creation: 2008
Date of revision:
Other versions of this item:
- Christopher P. Ball & Claude Lopez & Javier Reyes, 2013. "Remittances, Inflation and Exchange Rate Regimes in Small Open Economies," The World Economy, Wiley Blackwell, vol. 36(4), pages 487-507, 04.
- Ball, Christopher & Lopez, Claude & Reyes, Javier & Cruz-Zuniga, Martha, 2010. "Remittances, Inflation and Exchange Rate Regimes in Small Open Economies," MPRA Paper 22648, University Library of Munich, Germany.
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-21 (All new papers)
- NEP-CBA-2008-04-21 (Central Banking)
- NEP-MAC-2008-04-21 (Macroeconomics)
- NEP-MIG-2008-04-21 (Economics of Human Migration)
- NEP-MON-2008-04-21 (Monetary Economics)
- NEP-OPM-2008-04-21 (Open Economy Macroeconomics)
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