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Remittances and the real effective exchange rate

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We examine the long-run relationship between remittances and the real exchange rate for less-developed countries. In a key departure from the literature, we employ a panel cointegration approach using an innovative method for the measurement of the multilateral real effective exchange rate and we focus on high-remittance economies. We find a small inelastic, but significant, long-run relationship which confirms a Dutch disease type effect. The short-run relationship is explored using a panel vector error correction model which confirms that short-run causality is unidirectional running from remittances to the exchange rate. Potential asymmetries in this relationship are identified using quantile regression analysis.

Keywords: F0; F4; O1; panel cointegration; panel vector error correction; quantile regression; real effective exchange rate; remittances

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.808311

Affiliations: Department of Economics, University of Waikato, Hamilton, New Zealand

Publication date: December 1, 2013

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