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

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.
Publication date: December 2010
ISBN: 9781455210947
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Money and Monetary Policy , Money and Monetary Policy , International - Economics , International - Economics , Worker's remittances , equilibrium real exchange rate , low-income countries , exchange rate , remittances , real exchange rate , remittance , workers ? remittances

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