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Monetary Policy Response to a Migration Shock: An Analysis for a Small Open Economy

Franz Hamann, Cesar Anzola, Oscar Avila-Montealegre, Juan Castro-Fernandez, Anderson Grajales-Olarte, Alexander Guarín López, Juan C Mendez-Vizcaino, Juan Ospina-Tejeiro and Mario Ramos-Veloza

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We develop a small open economy model with nominal rigidities and fragmented labor markets to study the response of the monetary policy to a migration shock. Migrants are characterized by their productivity levels, their restrictions to accumulate capital, as well as by the fl exibility of their labor income. Our results show that the monetary policy response depends on the characteristics of migrants and the local labor market. An infl ow of low(high)-productivity workers reduces(increases) marginal costs, lowers(raises) infl ation expectations and pushes the Central Bank to reduce(increase) the interest rate. The model is calibrated to the Colombian economy and used to analyze a migratory in flow of financially constraint workers from Venezuela into a sector with flexible and low wages. **** RESUMEN: En este artículo analizamos la respuesta de política monetaria ante un choque migratorio, mediante el desarrollo de modelo de economía pequeña y abierta con mercados de trabajo fragmentados. Los migrantes se caracterizan por sus bajos niveles de productividad, restricciones de acumulación de capital y la mayor flexibilidad de su ingreso laboral. Los resultados evidencian que la respuesta de política monetaria depende de las características de los migrantes y del mercado laboral. Una entrada de trabajadores de baja(alta) productividad reduce(aumenta) los costos marginales, disminuye(incrementa) las expectativas de in flación y lleva al Banco Central a reducir(aumentar) la tasa de interés. El modelo se calibra para la economía colombiana y se usa para analizar un in flujo migratorio de trabajadores venezolanos en un sector de salarios bajos y flexibles.

Keywords: Neoclassical Model; Wage Differentials; Informal Labor Markets; Migration; Monetary Policymodelo; neoclásico; diferenciales salariales; mercados informales de trabajo; migración; política monetaria (search for similar items in EconPapers)
JEL-codes: E13 E50 J31 J46 J61 (search for similar items in EconPapers)
Pages: 33
Date: 2021-01
New Economics Papers: this item is included in nep-cba, nep-dem, nep-dge, nep-lma and nep-mac
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DOI: 10.32468/be.1153

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