Investigating the link between remittances and inflation: evidence from the Philippines

Abstract

ABSTRACT From a macroeconomic perspective, scholarly literature has established that remittances are inflationary because they fuel higher consumer spending through increased income. However, from the perspective of household decision-making, remittances can taper consumption variations and soften inflationary pressures. In this study, we probe whether rising inflation in remittance-recipient economies triggers the sending of remittances. In evaluating the impact of inflation in the Philippines, we found that increases in inflation can prompt the sending of more remittances from migrant relatives in the short run. More than the anticipation of remittances during inflationary periods, it was shown that remittances are not necessarily inflationary. There were other more dominant internal factors that can stimulate inflationary pressures. Thus, the usual arguments that remittances contribute to economic instability still warrant further investigations.