Working paper/research report

Publication year: 2016

URL: https://hdl.handle.net/10419/155650

Title of series: MAGKS Joint discussion paper series in economics

Number in series: 2016, 38

Abstract: 

Remittance inflows from overseas workers are an important source of foreign funding for developing and emerging economies. The literature is in- conclusive about the cyclical nature of remittance inflows. To the extent remittances are procyclical they pose a challenge to monetary policy: a tightening of policy will be less effective if at the same time remittances increase strongly. The same is true for a policy easing under exceptionally weak remittance inflows. This paper estimates a series of nonlinear (smooth-transition) local projections to study the effectiveness of monetary policy under different remittance inflows regimes. The model is able to provide state-dependent impulse response functions. We show that for Kenya, Mexico, Colombia and the Philippines monetary policy indeed has a smaller domestic effect under strong inflows of remittances. These results have important implications for the design of inflation targeting in developing countries.

Harvard Citation style: Machasio, I. and Tillmann, P. (2016) Remittance inflows and state-dependent monetary policy transmission in developing countries. (MAGKS Joint discussion paper series in economics, 2016, 38). Marburg: Philipps-University Marburg. https://hdl.handle.net/10419/155650

APA Citation style: Machasio, I., & Tillmann, P. (2016). Remittance inflows and state-dependent monetary policy transmission in developing countries. (MAGKS Joint discussion paper series in economics, 2016, 38). Philipps-University Marburg. https://hdl.handle.net/10419/155650