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Workers' Remittances and the Equilibrium Real Exchange Rate; Theory and Evidence

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

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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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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