The Macroeconomics of Remittances In the Philippines
AbstractThe literature on remittances has in the past concentrated on themicroeconomic aspects of the remittance process: the determinants ofremittances, impact of remittances on household allocation decisions, and theirimpact on poverty. Only recently has there been more attention on themacroeconomic impact of remittances. It is to be expected that, whenremittance inflows are as large as they are in the Philippines, they are likely tohave significant macroeconomic effects.Our paper first explores the cyclical dynamics of remittances to thePhilippines and secondly, analyses the macroeconomic impact of remittancesand the monetary policy implications. In this second endeavour, our paper usesa dynamic structural quarterly macroeconometric model of the Philippines totrace the various channels along which remittances affect the mainmacroeconomic variables.In the assessment of the impact of the recent global recession we shouldalso consider the remittances as a transmission channel. We have establishedthat remittances are driven by the economic cycle of the main host countriesand that the ongoing recession will thus lead to a decline in transfers. Throughour model we have been able to trace the impact of changes in remittances onimportant economic variables, like aggregate demand, money supply andinterest rates, exchange rate and labour supply and wages. We have alsoestablished that the fluctuations in remittances flows over the years are of amagnitude that is significant enough for policy makers to take notice. Themodel simulations have shown that the impact of the US recession on thePhilippine economy is more severe once we take account of the endogeneityand pro-cyclicality of remittances.
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Bibliographic InfoPaper provided by International Institute of Social Studies of Erasmus University (ISS), The Hague in its series ISS Working Papers - General Series with number 470.
Date of creation: 01 Mar 2009
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Monetary policy; Exchange rate; Remittances;
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