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

Ralph Chami (), Adolfo Barajas, Peter Montiel and Dalia Hakura

No 10/287, IMF Working Papers from International Monetary Fund

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.

Keywords: Capital inflows; Developing countries; Economic models; Exchange rate appreciation; Real effective exchange rates; Foreign exchange; Low-income developing countries; International finance; Workers remittances; Worker’s remittances, equilibrium real exchange rate, low-income countries, exchange rate, remittances, real exchange rate, remittance, workers ? remittances, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mig
Date: 2010-12-01
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Related works:
Journal Article: Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence (2011) Downloads
Working Paper: Workers' Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence (2010) Downloads
Working Paper: Workers' Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence (2010) Downloads
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