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On the Response of Inflation and Monetary Policy to an Immigration Shock

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  • Benjamín García
  • Juan Guerra-Salas

Abstract

An immigration shock has an ambiguous effect on inflation, because there are multiple channels working in both directions. Cross-country empirical evidence on Venezuelan immigration in Latin America points to a net disinflationary effect. We study immigration and inflation in a general equilibrium model with search frictions in the labor market, which we calibrate to Chile, an emerging country that has experienced substantial immigration in recent years. A net disinflationary effect is consistent with a labor supply channel dominating an aggregate demand channel. We also find that the systematic response of monetary policy is quantitatively important for the propagation of the shock.

Suggested Citation

  • Benjamín García & Juan Guerra-Salas, 2025. "On the Response of Inflation and Monetary Policy to an Immigration Shock," Journal of Human Capital, University of Chicago Press, vol. 19(2), pages 383-433.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/734387
    DOI: 10.1086/734387
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