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

Author/Editor:

Ralph Chami ; Adolfo Barajas ; Peter J Montiel ; Dalia S Hakura

Publication Date:

December 1, 2010

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 2010/287

Subject:

Agricultural prices Outward remittances Real effective exchange rates Real exchange rates Remittances

English

Publication Date:

December 1, 2010

ISBN/ISSN:

9781455210947/1018-5941

Stock No:

WPIEA2010287

Pages:

42

Please address any questions about this title to publications@imf.org