The Effects of Remittances on Inflation: Evidence from Bangladesh
Abstract
Like many developing countries, remittances are relatively larger capital inflows in Bangladesh in the recent years. Hence, understanding the impact of remittances on the macroeconomic variables such as inflation is essential for the policy makers of the recipient economy. Incorporating remittances as an exogenous variable to the standard inflation function, this paper verifies how it affects the inflation rate in Bangladesh in the 1972-2010 periods. Applying Vector Autoregressive (VAR) techniques, the empirical results find that a one percent increase in remittances inflows increases inflation rate by 2.48 percent in the long run, whereas no significant relationship is evident between these two variables in the short-run in Bangladesh.
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