Monetary Policy and International Remittances

Abstract

This article studies the response of Mexico’s monetary policy to inflows of workers’ remittances. Previous studies have shown that remittances can have an impact on several macroeconomic variables of the receiving country (e.g. exchange rate, inflation and output, among others). Mexico has the largest inflow of remittances in Latin America and the second largest inflow in the world. As such, it may be the case that the monetary authority in Mexico is taking these flows into account when selecting their monetary policy stance. Overall, the results of this study indicate that remittance shocks do not have a large impact on Mexico’s monetary policy variables. This seems to suggest that Mexico’s Central Bank main concern is inflation and that the potential appreciation of the Mexican currency as a result of increased remittance inflows might not be a priority.