VI Macroeconomic Implications of Remittances: A General Equilibrium Model with Money
  • 1 0000000404811396 Monetary Fund
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The existing literature has largely been silent concerning the impact of remittances on the functioning of government policy and the macroeconomy. In the absence of a unified framework for evaluating this impact, a positive aura has surrounded and colored the role of remittances and the policy prescription toward these flows. The conventional wisdom, with few exceptions, is that remittances (1) represent a stable and reliable source of foreign exchange, (2) reduce poverty, (3) insure consumption against negative shocks, (4) reduce macroeconomic volatility, (5) enhance investment in physical and human capital, and (6) alleviate credit constraints. Consequently, the current emphasis among policymakers is to highlight and attract remittances as a costless cure for the many economic challenges facing developing countries. Without careful analysis of the macroeconomic implications of such transfers, however, policies aimed at encouraging remittances may have unintended and possibly adverse consequences for the recipient economies.

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