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

Author

Listed:
  • Mr. Ralph Chami
  • Mr. Adolfo Barajas
  • Mr. Peter J Montiel
  • Ms. Dalia S Hakura

Abstract

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.

Suggested Citation

  • Mr. Ralph Chami & Mr. Adolfo Barajas & Mr. Peter J Montiel & Ms. Dalia S Hakura, 2010. "Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence," IMF Working Papers 2010/287, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/287
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    More about this item

    Keywords

    WP; remittance flow; remittance inflow; remittance receipt; workers' remittance; traded goods;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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