Lopez, HumbertoMolina, LuisBussolo, Maurizio2012-06-042012-06-042007-04https://hdl.handle.net/10986/7069Existing empirical evidence indicates that remittances have a positive impact on a good number of development indicators of recipient countries. Yet when flows are too large relative to the size of the recipient economies, as those observed in a number of Latin American countries, they may also bring a number of undesired problems. Among those probably the most feared in this context is the Dutch Disease. This paper explores the empirical evidence regarding the impact of remittances on the real exchange rate. The findings suggest that remittances indeed appear to lead to a significant real exchange rate appreciation. The paper also explores policy options that may somewhat offset the observed effect.CC BY 3.0 IGOABSOLUTE VALUEADJUSTMENT PROCESSADVERSE EFFECTSBANKBASE YEARBUDGET CONSTRAINTCAPITA GROWTHCAPITA INCOMECAPITAL FLOWSCAPITAL INFLOWCAPITAL INFLOWSCOUNTRY LEVELCROSS COUNTRYCURRENT ACCOUNTCURRENT ACCOUNT DEFICITDEPENDENT VARIABLEDEVALUATIONDEVELOPING COUNTRIESDEVELOPMENT INDICATORSDISEQUILIBRIUMDOMESTIC ECONOMYECONOMETRIC ISSUESECONOMETRIC MODELSECONOMETRICSECONOMIC MODELSECONOMIC OUTLOOKECONOMICSECONOMICS LITERATUREEFFECT OF REMITTANCESEMPIRICAL EVIDENCEEMPIRICAL LITERATUREEMPIRICAL MODELEMPIRICAL RESULTSEMPIRICAL SECTIONEQUILIBRIUMERROR TERMESTIMATED PARAMETERESTIMATION TECHNIQUESEVOLUTION OF REMITTANCESEXCHANGE RATE DEPRECIATIONEXCHANGE RATE MISALIGNMENTEXPLANATORY VARIABLESEXPORTSEXTERNAL SHOCKSFACTOR DEMANDFINANCIAL ASSETSFISCAL POLICYFIXED EFFECTSFIXED EFFECTS ESTIMATIONFOREIGN CURRENCYGDPGDP PER CAPITAGLOBAL LEVELGOVERNMENT CONSUMPTIONGROWTH RATEGROWTH RATESHOME COUNTRYHOST COUNTRIESIMPACT OF REMITTANCESIMPORTANCE OF REMITTANCESINCOME EFFECTINCOME LEVELSINCOMESINCREASE IN REMITTANCESINFLATION TARGETSINTEREST RATESINTERNATIONAL COMPETITIVENESSINTERNATIONAL MARKETSINTERNATIONAL MONETARY FUNDINTERNATIONAL REMITTANCESLABOR MARKETMACROECONOMIC EFFECTSMACROECONOMIC STABILITYMIGRANT WORKERSMIGRANTSMIGRATION PATTERNSNATURAL RESOURCESNEGATIVE IMPACT0 HYPOTHESISOPEN ECONOMYOUTPUT GROWTHOUTPUT PER CAPITAOUTPUT VOLATILITYOVERVALUATIONOVERVALUED EXCHANGEOVERVALUED EXCHANGE RATESPER CAPITA GROWTHPER CAPITA INCOMEPOINT ESTIMATEPOINT ESTIMATESPOLICY MAKERSPOLICY OPTIONSPOLICY RESEARCHPRICE ADJUSTMENTPRICE TAKERSPRODUCTIVITY GROWTHREAL APPRECIATIONREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATESREAL INTERESTREAL INTEREST RATERECIPIENT COUNTRIESRELATIVE PRICEREMITTANCEREMITTANCE FLOWSREMITTANCE INFLOWSREMITTANCESREMITTANCES FLOWSSKILLED LABORTAXATIONTRADABLE GOODSTRADABLE SECTORSTRADE DEFICITUTILITY FUNCTIONVALUE ADDEDWAGESWORKERS REMITTANCESWorld Bank10.1596/1813-9450-4213