A theoretical discussion of the role of remittances in a small open economy real business cycle model
Remittances are a large source of external finance especially for developing countries. This paper theoretically explains the role of remittances in a small open economy. It presents an extension to the baseline Real Business Cycle model through the inclusion of financial sector as intermediaries of...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
| Published: |
Animo Repository
2013
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| Subjects: | |
| Online Access: | https://animorepository.dlsu.edu.ph/etd_bachelors/11318 |
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| Institution: | De La Salle University |
| Language: | English |
| Summary: | Remittances are a large source of external finance especially for developing countries. This paper theoretically explains the role of remittances in a small open economy. It presents an extension to the baseline Real Business Cycle model through the inclusion of financial sector as intermediaries of these transfers, as depository banks of households, and as a source of external funding for firms in financing the wage bill. In an attempt to explain their role in the economy, the four-sector small open economy model is used to explore the interaction between economic sectors. Considering that remittances are an additional source of income for households, these transfers clearly affect household budget constraint and firm borrowings for wage bill. |
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