The Macroeconomic Impact of Remittances: A sending country perspective
Using data for Germany, we analyze the impact of migration and remittances by developing an open-economy general equilibrium model with heterogeneous households. Within the model, the flows of remittances depend on the altruism of households. Households with a higher altruism coefficient derive a higher utility from consumption of distant household members. Estimating the interrelation between household characteristic and remittances, we are able to derive altruism coefficients for different types of households. Applying the coefficients to our model, we show that remittances affect the macroeconomy primarily through the real exchange rate channel. Stronger remittances outflows depreciate the real exchange rate and give incentives to reallocate resources from the non-tradable towards tradable goods sectors. In the case of Germany, this translates into a converse dutch disease phenomenon.
Estonia’s EMU Accession: Assessing the Impact on Trade
In this project, the impact of the common currency on Estonia's foreign trade is analysed in a multi-sectoral general-equilibrium model. Estonia is a highly open economy and it's currency is pegged against the Euro since 1999 and the German mark since 1992. Transaction cost savings, therefore, are expected to be low amounting only 0.2 to 0.4 per cent of GDP. In the last ten years, trading shares between Estonia and Eurozone countries are steadily declining. It is shown that by accounting for these limiting factors, the pure transaction cost effect of EMU accession increases imports and exports by three to four per cent. In the short term, trade-cost reduction does not lead to a trade-diversion towards Eurozone countries.