Volume 2012 (2012), Article ID 218071, 14 pages
The Macroeconomic Consequences of Remittances
1Department of Economics, Texas A&M University, College Station, TX 77843, USA
2Department of Finance and Economics, Texas State University-San Marcos, San Marcos, TX 78666, USA
3Department of Economics, American University of Sharjah, Sharjah, UAE
4IZA, 53113 Bonn, Germany
Received 30 May 2012; Accepted 22 July 2012
Academic Editors: J. M. Labeaga, U. Pascual, and M. Tsionas
Copyright © 2012 Dennis W. Jansen et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
This study examines the impact of a remittances shock on the main macroeconomic aggregates of a small open economy. It uses a stochastic limited participation model to generate dynamics that are consistent with the empirical literature, like the increase in inflation, consumption, and leisure. However, the remittances shock generates a prolonged decline in GDP, which only diminishes when remittances are a larger percentage of GDP, the fraction of remittances directed towards investment increases, or when the fraction of labor income that remittances represent is reduced and is overturned when the persistence of the remittances shocks is shortened.