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Remittances, monetary institutions, and autocracies

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  • Garriga, Ana Carolina
  • Meseguer, Covadonga

Abstract

How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the ‘impossible trinity’, increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments’ incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument.

Suggested Citation

  • Garriga, Ana Carolina & Meseguer, Covadonga, 2019. "Remittances, monetary institutions, and autocracies," LSE Research Online Documents on Economics 101372, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:101372
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    Cited by:

    1. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Matthew Hoye, J., 2022. "Famine, remittances, and global justice," World Development Perspectives, Elsevier, vol. 27(C).

    More about this item

    Keywords

    Remittances; central bank independence; exchange rate regimes; autocracies; developing countries;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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