The impact of remittances on macroeconomic stability: The cases of Mexico and Central America

The present study uses the monetary approach to the balance of payments and a macroeconomic model of the Mundell-Fleming type to analyse the effects of family remittances on economic growth in Mexico and the countries making up the Central America region. The methodology employed is based on the application of a panel data model to quarterly balance-of-payments series for the 1990-2005 period. The study findings suggest that the repercussions of inward remittances are different in each country and depend on monetary policy. The econometric estimates also indicate that, when an upsurge in remittances occurs, its contribution to economic growth is smaller in countries where remittances tend to produce an overvalued exchange rate, reinforcing macroeconomic stability in the context of an open economy.