Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence
"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, and countercyclicality 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."
Volume (Year): Volume 11 Number 2 (2011)
Issue (Month): Spring 2011 (January)
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