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Business cycles and remittances: can the Beveridge-Nelson decomposition provide new evidence?

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  • Roberto Coronado

Abstract

In this paper, I analyze the business cycle properties of remittances and output series for three pairs of countries: United States-Mexico, United States-El Salvador, and Germany-Turkey. Using an unobserved components state-space model (via the Beveridge-Nelson decomposition), I decompose the remittances and output series into stochastic permanent and cyclical components. I then use the resulting stationary cyclical components to estimate co-movements between remittances and output series. Empirical results indicate that remittances are countercyclical with all the home countries: Mexico, El Salvador, and Turkey. With respect to source countries, remittances to Mexico are countercyclical with the United States business cycle, while remittances from the United States to El Salvador and remittances from Germany to Turkey are strongly procyclical with output fluctuations in the source country. The contribution of this paper to the literature is twofold: (1) I use high-frequency data (quarterly) for a relatively long period of time; and (2) I employ more recent and sophisticated econometric techniques in the decomposition of the series into stochastic permanent and cyclical components. The existing literature lacks both of these important aspects of my analysis. I show that once both of these factors are incorporated into the analysis, empirical results are more aligned to those predicted by economic theory.

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File URL: http://dallasfed.org/assets/documents/institute/wpapers/2009/0040.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 40.

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Date of creation: 2009
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Handle: RePEc:fip:feddgw:40

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Keywords: Business cycles ; Emigrant remittances ; Time-series analysis ; Econometric models ; Stochastic analysis;

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Cited by:
  1. Junaid Ahmed, 2012. "Cyclical Properties of Migrant's Remittances to Pakistan: What the data tell us," Economics Bulletin, AccessEcon, vol. 32(4), pages 3266-3278.
  2. Mazhar MUGHAL & Junaid AHMED, 2013. "Remittances and Business Cycles: Comparison of South Asian Countries," Working Papers 2012-2013_4, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Jan 2013.

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