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Monetary Policy Response to a Migration Shock: An Analysis for a Small Open Economy

Author

Listed:
  • Franz Hamann
  • Cesar Anzola
  • Oscar Avila-Montealegre
  • Juan Carlos Castro-Fernandez
  • Anderson Grajales-Olarte
  • Alexander Guarín
  • Juan C Mendez-Vizcaino
  • Juan J. Ospina-Tejeiro
  • Mario A. Ramos-Veloza

Abstract

We develop a small open economy model with nominal rigidities and fragmented labor markets to study the response of the monetary policy to a migration shock. Migrants are characterized by their productivity levels, their restrictions to accumulate capital, as well as by the fl exibility of their labor income. Our results show that the monetary policy response depends on the characteristics of migrants and the local labor market. An infl ow of low(high)-productivity workers reduces(increases) marginal costs, lowers(raises) infl ation expectations and pushes the Central Bank to reduce(increase) the interest rate. The model is calibrated to the Colombian economy and used to analyze a migratory in flow of financially constraint workers from Venezuela into a sector with flexible and low wages. **** RESUMEN: En este artículo analizamos la respuesta de política monetaria ante un choque migratorio, mediante el desarrollo de modelo de economía pequeña y abierta con mercados de trabajo fragmentados. Los migrantes se caracterizan por sus bajos niveles de productividad, restricciones de acumulación de capital y la mayor flexibilidad de su ingreso laboral. Los resultados evidencian que la respuesta de política monetaria depende de las características de los migrantes y del mercado laboral. Una entrada de trabajadores de baja(alta) productividad reduce(aumenta) los costos marginales, disminuye(incrementa) las expectativas de in flación y lleva al Banco Central a reducir(aumentar) la tasa de interés. El modelo se calibra para la economía colombiana y se usa para analizar un in flujo migratorio de trabajadores venezolanos en un sector de salarios bajos y flexibles.

Suggested Citation

  • Franz Hamann & Cesar Anzola & Oscar Avila-Montealegre & Juan Carlos Castro-Fernandez & Anderson Grajales-Olarte & Alexander Guarín & Juan C Mendez-Vizcaino & Juan J. Ospina-Tejeiro & Mario A. Ramos-Ve, 2021. "Monetary Policy Response to a Migration Shock: An Analysis for a Small Open Economy," Borradores de Economia 1153, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1153
    DOI: https://doi.org/10.32468/be.1153
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    More about this item

    Keywords

    Neoclassical Model; Wage Differentials; Informal Labor Markets; Migration; Monetary Policymodelo; neoclásico; diferenciales salariales; mercados informales de trabajo; migración; política monetaria;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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