Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-23T06:11:11.839Z Has data issue: false hasContentIssue false
  • English
  • Français

A NOTE ON REMITTANCES, MONETARY REGIMES, AND NONTRADABLE INFLATION DYNAMICS

Published online by Cambridge University Press:  05 May 2015

Emmanuel K.K. Lartey
Emmanuel K.K. Lartey*
Affiliation:
California State University Fullerton
*
Address correspondence to: Emmanuel K.K. Lartey, Department of Economics, California State University, Fullerton, 800 N. State College Blvd, Fullerton, CA 92834, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the dynamic and desirable properties of monetary regimes in a remittances recipient economy, with emphasis on the effect on sectoral output and nontradable inflation dynamics. The findings indicate that under a fixed exchange rate regime, an increase in remittances creates increased demand for nontradable goods, and hence a rise in nontradable inflation, as well as expansion in output of nontradables. Under a nontradable inflation targeting regime, however, a decrease in nontradable inflation and an expansion in tradable goods production are observed following an increase in remittances. A near-zero nontradable inflation rate and managed variability in the nominal exchange rate typify the optimal monetary policy, suggesting that an inflation targeting regime is preferable to a fixed exchange regime under such a scenario. A VAR analysis shows that the dynamics of inflation in El Salvador and the Philippines is in consonance with those observed in the model under the fixed exchange rate and nontradable inflation targeting regimes, respectively.

Keywords

Monetary PolicyNontradable InflationReal Exchange RateRemittances
Type
Notes
Information
Macroeconomic Dynamics , Volume 20 , Issue 6 , September 2016 , pp. 1668 - 1682
Copyright
Copyright © Cambridge University Press 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Acosta, Pablo, Calderón, Cesar, Fajnzylber, Pablo, and López, Humberto (2008) What is the impact of international migrant remittances on poverty and inequality in Latin America? World Development 36, 89–114.CrossRefGoogle Scholar
Acosta, Pablo A., Mandelman, Federico S., and Lartey, Emmanuel K.K. (2009) Remittances and the Dutch disease. Journal of International Economics 79, 102–116.CrossRefGoogle Scholar
Ball, Christopher P., Lopez, Claude, and Reyes, Javier (2013) Remittances, inflation and exchange rate regimes in small open economies. World Economy 36, 487–507.CrossRefGoogle Scholar
Calvo, G. (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12, 383–398.Google Scholar
Chami, R., Cosimano, T., and Gapen, M. (2006) Beware of Emigrants Bearing Gifts: Optimal Fiscal and Monetary Policy in the Presence of Remittances. IMF working paper 06/61.Google Scholar
Devereux, Michael B., Lane, Philip R., and Xu, Juanyi (2006) Exchange rates and monetary policy in emerging market economies. Economic Journal 116, 478–506.CrossRefGoogle Scholar
Gertler, M., Gilchrist, S., and Natalucci, F. (2007) External constraints on monetary policy and the financial accelerator. Journal of Money, Credit and Banking 39, 295–330.Google Scholar
Kose, M. Ayhan and Riezman, Raymond (1999) Trade Shocks and Macroeconomic Fluctuations in Africa. CSGR working paper 43/99.CrossRefGoogle Scholar
Lartey, Emmanuel K.K. (2008) Capital inflows, Dutch disease effects and monetary policy in a small open economy. Review of International Economics 16, 971–989.CrossRefGoogle Scholar
Mandelman, Federico S. (2012) Monetary and exchange rate policy under remittance fluctuations. Journal of Development Economics 102 (c), 128–147.CrossRefGoogle Scholar