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The Impact of Remittances on Central Bank Balance Sheets and Inflation in Nepal

Author

Listed:
  • Nephil Matangi Maskay, Ph.D.

    (Nepal Rastra Bank)

  • Sven Steinkamp, Ph.D.

    (Institute of Empirical Economic Research, Osnabrück University)

  • Frank Westermann, Ph.D.

    (Institute of Empirical Economic Research, Osnabrück University)

Abstract

Starting from a set of stylized central bank balance sheets, we analyze how central bank policies influence the inflationary impact of remittances. We also estimate the impact of remittances on inflation empirically, using a Vectorautoregression (VAR) framework and a quarterly data set from Nepal. We find this impact to be positive, even after controlling for inflation from India. The domestic monetary base, on the other hand, has lost significance as an independent factor for inflation in the latest 10 years of our sample period. This evidence is consistent with the "impossible trinity" hypothesis. In the conclusions we discuss policy options to accommodate large remittances inflows.

Suggested Citation

  • Nephil Matangi Maskay, Ph.D. & Sven Steinkamp, Ph.D. & Frank Westermann, Ph.D., 2015. "The Impact of Remittances on Central Bank Balance Sheets and Inflation in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 27(2), pages 1-18, October.
    • Handle: RePEc:nrb:journl:v:27:y:2015:i:2:p:1
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    References listed on IDEAS

    as
    1. Giuliano, Paola & Ruiz-Arranz, Marta, 2009. "Remittances, financial development, and growth," Journal of Development Economics, Elsevier, vol. 90(1), pages 144-152, September.
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    3. Bettin, Giulia & Lucchetti, Riccardo & Zazzaro, Alberto, 2012. "Financial development and remittances: Micro-econometric evidence," Economics Letters, Elsevier, vol. 115(2), pages 184-186.
    4. Mandelman, Federico S., 2013. "Monetary and exchange rate policy under remittance fluctuations," Journal of Development Economics, Elsevier, vol. 102(C), pages 128-147.
    5. Gupta, Sanjeev & Pattillo, Catherine A. & Wagh, Smita, 2009. "Effect of Remittances on Poverty and Financial Development in Sub-Saharan Africa," World Development, Elsevier, vol. 37(1), pages 104-115, January.
    6. Aggarwal, Reena & Demirgüç-Kunt, Asli & Pería, Maria Soledad Martínez, 2011. "Do remittances promote financial development?," Journal of Development Economics, Elsevier, vol. 96(2), pages 255-264, November.
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    More about this item

    Keywords

    Remittances; Inflation; Trilemma hypothesis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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