The Macroeconomic Consequences of Remittances

44 Pages Posted: 11 Apr 2014 Last revised: 28 Jul 2020

See all articles by Berrak Buyukkarabacak

Berrak Buyukkarabacak

Ozyegin University

Santanu Chatterjee

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Thomas Lebesmuehlbacher

Xavier University

Date Written: August 3, 2017

Abstract

This paper examines two important channels which influence the dynamic absorption of remittances at the macroeconomic level: (i) the presence of borrowing constraints, and (ii) the distribution of remittances across recipient households. Using an open economy DSGE model with heterogeneous households, we show that remittances accruing to hand-to-mouth households generate a dynamic response that is inherently contractionary for the recipient economy. On the other hand, credit-constrained households with ownership of capital respond in a way that is inherently expansionary. The ability of countercyclical remittances to smooth business cycle shocks also depends critically on their distribution across households. Calibrating the model to Philippines using both aggregate data as well as micro-evidence from the Family Income and Expenditure Survey (FIES), we show that the presence of binding credit constraints and the internal distribution of remittances play an important role in improving the model's fit to the data. The welfare consequences of the distribution of remittances are also analyzed.

Keywords: Remittances, credit constraints, labor supply, output investment, consumption, welfare

JEL Classification: F24, F41, O11

Suggested Citation

Bahadir, Berrak and Chatterjee, Santanu and Lebesmuehlbacher, Thomas, The Macroeconomic Consequences of Remittances (August 3, 2017). Available at SSRN: https://ssrn.com/abstract=2422901 or http://dx.doi.org/10.2139/ssrn.2422901

Berrak Bahadir

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade Uskudar
Istanbul, 34662
Turkey

Santanu Chatterjee (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Department of Economics
University of Georgia
Athens, GA 30602
United States
706-542-1709 (Phone)

HOME PAGE: http://https://sites.google.com/view/schatterjee/home

Thomas Lebesmuehlbacher

Xavier University ( email )

3800 Victory Parkway
Cincinnati, OH 45207
United States

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