The Impact of Remittances on Monetary Transmission Mechanisms during the Pre and Post-Conflict Eras in Sri Lanka

Jahan Abdul Raheem (), Gazi Hassan () and Mark Holmes ()
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Jahan Abdul Raheem: University of Waikato

Working Papers in Economics from University of Waikato

Abstract: This study analyses the impact of remittances on the monetary transmission mechanism (MTM) of the Sri Lankan economy during its conflict and post-conflict eras, using monthly data from 1996 to 2009. In addition, the study focuses on how the impact of remittances varied over different intermediate transmission channels, especially credit, asset prices, and exchange rate, in transmitting monetary policy shocks to the economy. The SVAR model is used to analyse the impact of remittances in the transmission of monetary policy shock to real economic variables. The empirical findings reveal that remittances affect the MTM of Sri Lanka in the post-conflict period significantly and their impact on bank credit and asset prices is relatively more intense than the exchange rate channel in the post-conflict period. The findings of this study also suggest that conflict-driven migration and the consequent increase in the inflow of remittances could impact monetary policy measures through wealth and liquidity effects more after the end of the conflict.

Keywords: remittances; monetary policy; transmission channels; conflict (search for similar items in EconPapers)
JEL-codes: D74 E5 E52 F24 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2021-10-21
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:21/10

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