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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...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 38-2016) |
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| Main Authors: | , |
| Format: | Article |
| Language: | English |
| Published: |
2016
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| Subjects: | |
| Online Access: | PDF Full Text |
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| 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. |
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| Physical Description: | 34 Pages |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0524 |