Asymmetric effects of remittances on output in expansions and recessions

Abstract

Using non-linear methods, we argue that current research on estimates of remittance multipliers in expansions and recessions may yield biased results by ignoring whether remittances are increasing or decreasing. We employ an extended non-linear ARDL model to decompose remittance data into positive and negative shocks during expansions and recessions with data from the top eight remittance-receiving developing countries. We find that a decline in remittances will reduce output in expansions. Second, an increase in remittances will increase output during recessions. Positive remittance shocks are not associated with output in expansions, nor generally are negative remittance shocks in recessions. The managerial implications are twofold. First, policymakers can use remittances to counteract recessions in the receiving country by implementing favorable remittance policies, such as reducing transfer fees. Second, if remittances are maintained in expansions, future recessions can potentially be managed.

Keywords

• Remittance multipliers
• Asymmetric effects
• Business cycles
• Expansions
• Contractions