Remittances and Macroeconomic Volatility in African Countries

March 2, 2015

Preview Citation

Format: Chicago

Ahmat Jidoud. Remittances and Macroeconomic Volatility in African Countries, (USA: International Monetary Fund, 2015) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the channels through which remittances affect macroeconomic volatility in African countries using a dynamic stochastic general equilibrium (DSGE) model augmented with financial frictions. Empirical results indicate that remittances—as a share of GDP—have a significant smoothing impact on output volatility but their impact on consumption volatility is somewhat small. Furthermore, remittances are found to absorb a substantial amount of GDP shocks in these countries. An investigation of the theoretical channels shows that the stabilization impact of remittances essentially hinges on two channels: (i) the size of the negative wealth effect on labor supply induced by remittances and, (ii) the strength of financial frictions and the ability of remittances to alleviate these frictions.

Subject: Balance of payments, Business cycles, Consumption, Economic growth, Financial markets, Financial sector development, Labor, Labor supply, National accounts, Remittances

Keywords: Africa, African Economies, Borrowing cost, Business cycle, Business cycles, Consumption, Consumption fluctuation, Consumption volatility, Countercyclical remittance, Effect of remittance, Financial Frictions, Financial sector development, Interest rate, Labor supply, Macroeconomic Volatility, Remittance flow, Remittances, Remittances channel, Risk premium, Savings decision, Volatility decrease, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/049
Stock No:

WPIEA2015049
ISBN:

9781498300940
ISSN:

1018-5941

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