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Workers' Remittances and the Equilibrium Real Exchange Rate

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Author Info

  • Ralph Chami
  • Adolfo Barajas
  • Peter Montiel
  • Dalia Hakura

Abstract

This paper investigates the impact of workers’ remittances on equilibrium real exchange rates (ERER) in recipient economies. Using a small open economy model, it shows that standard "Dutch Disease" results of appreciation are substantially weakened or even overturned depending on: degree of openness; factor mobility between domestic sectors; counter cyclicality of remittances; the share of consumption in tradables; and the sensitivity of a country’s risk premium to remittance flows. Panel cointegration techniques on a large set of countries provide support for these analytical results, and show that ERER appreciation in response to sustained remittance flows tends to be quantitatively small.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/287.

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Length: 42
Date of creation: 01 Dec 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/287

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Keywords: Capital inflows; Developing countries; Economic models; Exchange rate appreciation; Low-income developing countries; Real effective exchange rates; Workers remittances; exchange rate; remittances; real exchange rate; remittance; workers ? remittances; remittance flows; remittance receipts; remittance inflows; increase in remittance; worker remittances; effective exchange rate; real effective exchange rate; capital flows; increase in remittances; effect of remittance; exchange rates; effects of remittances; real exchange rates; effect of remittances; foreign exchange; impact of remittance; remittance data; effects of remittance; exchange rate misalignment; worker remittance; changes in remittance flows; real exchange rate appreciation; value of remittance; value of remittances; remittance receiving; impact of remittances; remittance recipients; remittance receiving countries; real exchange rate depreciation; exchange rate depreciation; international transfers; equilibrium exchange rate; nominal effective exchange rate index; nominal exchange rate; nominal effective exchange rate; real exchange rate changes; current account balance; real exchange rate misalignment; effective exchange rates; exchange rate parity; exchange rate changes; fixed nominal exchange rate; exchange rate regimes; exchange reserves; foreign exchange reserves; amount of remittances; exchange rate index; migration;

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References

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  1. Emmanuel K.K. Lartey & Federico S. Mandelman & Pablo A. Acosta, 2008. "Remittances, exchange rate regimes, and the Dutch disease: a panel data analysis," Working Paper 2008-12, Federal Reserve Bank of Atlanta.
  2. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth," IMF Working Papers 06/257, International Monetary Fund.
  3. Lone Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2010. "External Balance in Low-Income Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 265-322 National Bureau of Economic Research, Inc.
  4. repec:wii:bpaper:bowp:068 is not listed on IDEAS
  5. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  6. Pablo A. Acosta & Nicole Rae Baerg & Federico S. Mandelman, 2009. "Financial development, remittances, and real exchange rate appreciation," Economic Review, Federal Reserve Bank of Atlanta, pages 1-12.
  7. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
  8. Joannes Mongardini & Brett Rayner, 2009. "Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries," IMF Working Papers 09/75, International Monetary Fund.
  9. Lopez, Humberto & Molina, Luis & Bussolo, Maurizio, 2007. "Remittances and the real exchange rate," Policy Research Working Paper Series 4213, The World Bank.
  10. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 267-284.
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