The impact of remittances on the monetary transmission mechanism in low-income countries

This thesis consists of three studies investigating the impact of remittances on monetary transmission mechanisms. The prime objective of this research is to explore how the inflow of remittances affects the different monetary transmission channels in remittance-receiving economies and what other factors influence remittances in altering their effects on monetary transmission mechanisms. The first two studies were undertaken using a panel of 51 remittance-receiving countries, while the third study used Sri Lanka as the location. The first study investigates the effects of remittances on bank credit and exchange rate channels, using a panel Structural Vector Autoregression (SVAR) to investigate how remittances affect these intermediate monetary transmission channels. The estimated impulse responses (IRs) of bank credit and exchange rates to a shock in remittances show a significant variation between countries in responding to a shock in remittances. In the second stage, we regress the IRs of selected horizons on selected economically significant variables to find out what other factors contribute to this variation. The cross-sectional regression suggests that the magnitude of remittances in terms of the remittances-to-GDP ratio affects the exchange rates channel significantly. However, the effect of remittances on bank credit is determined by the level of remittance inflow and the savings-to-GDP ratio. More precisely, remittances significantly affect the bank credit channel in countries where the remittances-to-GDP ratio is higher than five percent of GDP. The overall findings of this study suggest that policymakers, especially in higher remittance-receiving countries, have to pay attention to the role remittances play in weakening the monetary transmission mechanism (MTM). The second study investigates how institutions play a role in altering the effects of remittances on the bank credit channel. There are arguments about whether remittances contribute to the expansion of credit in remittance-receiving countries. In this study, we use a panel SVAR model to estimate the IRs of bank credit to a shock in remittances and regress these IRs on a set of institutional and other economically significant variables. The regression results indicate that stronger corruption control and regulatory quality, along with savings-to-GDP and remittances-to-GDP ratios, are associated with credit expansion in response to remittances. This empirical finding indicates that monetary policy measures may have difficulty in achieving their objectives through bank credit in higher remittance-receiving countries, which have a strong corruption control and regulatory quality environment. The third study analyses how the effects of remittances vary with regard to bank credit, exchange rates, and asset price channels in the conflict and post-conflict periods in the Sri Lankan economy. We apply a country-specific SVAR model by using the monthly data from 1996 to 2019. The empirical analysis suggests that remittances significantly affect these monetary transmission channels in the post-conflict period, and their effects on bank credit and asset prices are relatively stronger than the exchange rate channel in this period.

Grantor dc:publisher.institution

The University of Waikato

Year dc:date.issued

2026

Author dc:creator

• Abdul Raheem, Jahan

Advisors dc:contributor.advisor

• Holmes, Mark J.
• Ryan, Michael
• Hassan, Gazi M.

• remittances
• monetary policy
• monetary transmission mechanism

Statement dc:rights

• All items in Research Commons are provided for private study and research purposes and are protected by copyright with all rights reserved unless otherwise indicated.

Licence

• https://researchcommons.waikato.ac.nz/bitstreams/0beb3ed4-4550-4f69-a41f-5bfff2985cec/download