Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence

By Ralph Chami, Adolfo Barajas, Peter J Montiel, Dalia S Hakura

December 1, 2010

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Ralph Chami, Adolfo Barajas, Peter J Montiel, and Dalia S Hakura. Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence, (USA: International Monetary Fund, 2010) accessed December 3, 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 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.

Subject: Agricultural prices, Outward remittances, Real effective exchange rates, Real exchange rates, Remittances

Keywords: Remittance flow, Remittance inflow, Remittance receipt, Traded goods, Workers' remittance, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/287
Stock No:

WPIEA2010287
ISBN:

9781455210947
ISSN:

1018-5941

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