Beware of Emigrants Bearing Gifts: Optimal Fiscal and Monetary Policy in the Presence of Remittances

By Michael T. Gapen, T. Cosimano, R. Chami. Social Science Research Network, 2006

133 citations recorded by the source corpus.

This paper uses a stochastic dynamic general equilibrium model to investigate the influence of countercyclical remittances on the conduct of fiscal and monetary policy and trace their effects on real and nominal variables in a business cycle setting. We show that remittances raise disposable income and consumption, and insure against income shocks, thereby raising household welfare. However, remittances increase the correlation between labor and output, thereby producing a more volatile business cycle and increasing output and labor market risk. Optimal monetary policy in the presence of remittances deviates from the Friedman rule, highlighting the need for independent government policy instruments.

Subfields: Anthropology

View Paper: https://www.semanticscholar.org/paper/7ddb13ac16cc9b47c1b6763f2a69a55b7f03f6f9

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Citations in the corpus

• The Macroeconomic Consequences of Remittances (2012, background): “…are able to quantify its increase from a remittances shock (Keely and Tran (1989, Leon-Ledesma and Piracha (2004) and Des Haas (2006)), while macroeconomic studies only suggest that remittances increase consumption (Ratha (2003), Cáceres and Saca (2006), Chami et al (2006) and Gupta et al (2009)).”