On the Response of Inflation and Monetary Policy to an Immigration Shock
Benjamin Garcia and
Juan Guerra-Salas
Working Papers Central Bank of Chile from Central Bank of Chile
Abstract:
An immigration shock has an ambiguous effect on inflation. On one hand, aggregate consumption increases with a suddenly larger population; this “demand channel” creates inflationary pressures. On the other hand, the labor market becomes more slack as immigrants search for jobs, containing wage growth; this “labor supply channel” creates disinflationary pressures. The response of an inflationtargeting central bank to an immigration shock is, therefore, not obvious. We study these competingchannels in a New Keynesian model of a small open economy with search frictions in the labor market. Our simulations are designed to characterize the possible response of inflation and monetary policy in Chile, a small open emerging country that has experienced a substantial immigration flow in recent years.
Date: 2020-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mig and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_872.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:872
Access Statistics for this paper
More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().