Remittances and Current Account Dynamics

Abstract

This paper examines the impact of remittances on current account dynamics under alternative monetary and exchange rate policies. The main findings suggest that altruistic remittances precipitate a current account deficit under a fixed exchange rate regime, whereas a surplus is realized when monetary policy follows a Taylor‐type rule. Furthermore, self‐interest remittances are associated with a current account surplus under a Taylor rule that manages real exchange rate variability or a Taylor rule with aggressive nontradeable inflation targeting.