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Migration and Business Cycle Dynamics

Author

Listed:
  • Christie Smith

    () (Reserve Bank of New Zealand)

  • Christoph Thoenissen

    () (Department of Economics, University of Sheffield)

Abstract

Shocks to net migration matter for the business cycles. Using an estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy and a structural vector autoregression, we find that migration shocks account for a considerable proportion of the variability of per capita GDP. Migration shocks matter for the capital investment and consumption components of per capita GDP, but they are not the most important driver. Migration shocks are also important for residential investment and real house prices, but other shocks play a larger role in driving housing market volatility. In the DSGE model, the level of human capital possessed by migrants relative to that of locals materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has higher levels of human capital than locals, as seems to be common in most OECD economies, a migration shock has an expansionary effect on per capita GDP and its components.

Suggested Citation

  • Christie Smith & Christoph Thoenissen, 2018. "Migration and Business Cycle Dynamics," Working Papers 2018006, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2018006
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2018_006
    File Function: First version, May 2018
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Migration and Business Cycle Dynamics
      by Christian Zimmermann in NEP-DGE blog on 2018-07-24 12:54:28

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    Cited by:

    1. Guilherme Bandeira & Jordi Caballé & Eugenia Vella, 2018. "Should I stay or should I go? Austerity, unemployment and migration," Working Papers 1839, Banco de España;Working Papers Homepage.

    More about this item

    Keywords

    Migration; macroeconomics; business cycle fluctuations;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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