Remittances, Output, and Exchange Rate Regimes: Theory with an Application to Latin America

Immigrant remittances have a broad effect on the receiving economies. We show this impact on the main macroeconomic aggregates is dependent on the policy arrangements in place that manage capital flows. We look at remittance inflows in a small open economy to examine their influence on output under alternative exchange rate regimes. Using a simple stochastic limited participation model, we are able to reproduce dynamics consistent with the...