On the Response of Inflation and Monetary Policy to an Immigration Shock

Benjamin Garcia and Juan Guerra-Salas

Journal of Human Capital, 2025, vol. 19, issue 2, 383 - 433

Abstract: An immigration shock has an ambiguous effect on inflation, because there are multiple channels working in both directions. Cross-country empirical evidence on Venezuelan immigration in Latin America points to a net disinflationary effect. We study immigration and inflation in a general equilibrium model with search frictions in the labor market, which we calibrate to Chile, an emerging country that has experienced substantial immigration in recent years. A net disinflationary effect is consistent with a labor supply channel dominating an aggregate demand channel. We also find that the systematic response of monetary policy is quantitatively important for the propagation of the shock.

Date: 2025
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Working Paper: On the Response of Inflation and Monetary Policy to an Immigration Shock (2020)
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