Remittances are unlike nearly all other capital flows in that they are stable and move countercyclically relative to the recipient country’s economy. As a result, they mitigate the costs of forgone domestic monetary policy autonomy and also serve as an international risk-sharing mechanism for developing countries. The observable implication of these arguments is that remittances increase the likelihood that policymakers adopt fixed exchange rates.
A new APSR paper from David Andrew Singer.
One Response
Doesn’t 2009 call this research into question. In 2009, remittances went down when they needed to go up. Global downturns may still cause problems for developing countries that have forgone domestic monetary policy autonomy.