Remittance Inflows and State-Dependent Monetary Policy Transmission in Developing Countries

Remittance inflows from overseas workers are an important source of for- eign funding for developing and emerging economies. The literature is in- conclusive about the cyclical nature of remittance inflows. To the extent remittances are procyclical they pose a challenge to monetary policy: a tight...

Full description

Saved in:
Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 38-2016)
Main Authors: Machasio, Immaculate, Tillmann, Peter
Format: Article
Language:English
Published: Philipps-Universität Marburg 2016
Subjects:
Online Access:PDF Full Text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Remittance inflows from overseas workers are an important source of for- eign funding for developing and emerging economies. The literature is in- conclusive about the cyclical nature of remittance inflows. To the extent remittances are procyclical they pose a challenge to monetary policy: a tightening of policy will be less effective if at the same time remittances increase strongly. The same is true for a policy easing under exceptionally weak remittance inflows. This paper estimates a series of nonlinear (smooth-transition) local projections to study the effectiveness of monetary policy under different remittance inflows regimes. The model is able to provide state-dependent impulse response functions. We show that for Kenya, Mexico, Colombia and the Philippines monetary policy indeed has a smaller domestic effect under strong inflows of remittances. These results have important implications for the design of inflation targeting in developing countries.
Physical Description:34 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0524