Workers’ Remittances and the Equilibrium Real Exchange Rate

Download or read book Workers’ Remittances and the Equilibrium Real Exchange Rate written by Mr.Adolfo Barajas and published by International Monetary Fund. This book was released on 2010-12-01 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.