Remittances, monetary institutions, and autocracies

Ana Carolina Garriga and Covadonga Meseguer

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the ‘impossible trinity’, increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments’ incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument.

Keywords: Remittances; central bank independence; exchange rate regimes; autocracies; developing countries (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019-10-02
New Economics Papers: this item is included in nep-his, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (2)

Published in Oxford Development Studies, 2, October, 2019, 47(4), pp. 452 - 467. ISSN: 1360-0818

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Journal Article: Remittances, monetary institutions, and autocracies (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101372

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