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Remittances and Macroeconomic Volatility in African Countries
Author: Ahmat Jidoud
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 049
Language:
English
Publication Date:
02 Mar 2015
DOI:
https://doi.org/10.5089/9781498300940.001
ISBN:
9781498300940
ISSN:
1018-5941
Pages:
37
Keywords:
WP; business cycle; risk premium; borrowing cost; interest rate; Macroeconomic Volatility; Remittances; African Economies; Financial Frictions; consumption volatility; countercyclical remittance; remittance flow; remittances channel; savings decision; effect of remittance; volatility decrease; consumption fluctuation; Consumption; Labor supply; Business cycles; Financial sector development; Africa
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper investigates the channels through which remittances affect macroeconomic volatility in African countries using a dynamic stochastic general equilibrium (DSGE) model augmented with financial frictions. Empirical results indicate that remittances—as a share of GDP—have a significant smoothing impact on output volatility but their impact on consumption volatility is somewhat small. Furthermore, remittances are found to absorb a substantial amount of GDP shocks in these countries. An investigation of the theoretical channels shows that the stabilization impact of remittances essentially hinges on two channels: (i) the size of the negative wealth effect on labor supply induced by remittances and, (ii) the strength of financial frictions and the ability of remittances to alleviate these frictions.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund