02381cas a2200277 a 4500 AALejournalIMF016671 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513531236 1018-5941 BD-DhAAL BD-DhAAL Barajas, Adolfo. What's Different about Monetary Policy Transmission in Remittance-Dependent Countries? / Adolfo Barajas, Ralph Chami, Christian Ebeke, Anne Oeking. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (41 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Despite welfare and poverty-reducing benefits for recipient households, remittance inflows have been shown to entail macroeconomic challenges; producing Dutch Disease-type effects through their upward (appreciation) pressure on real exchange rates, reducing the quality of institutions, delaying fiscal adjustment, and ultimately having an indeterminate effect on long-run growth. The paper explores an additional challenge, for monetary policy. Although they expand bank balance sheets, providing a stable flow of interest-insensitive funding, remittances tend to increase banks' holdings of liquid assets. This both reduces the need for an interbank market and severs the link between the policy rate and banks' marginal costs of funds, thus shutting down a major transmission channel. We develop a stylized model based on asymmetric information and a lack of transparent borrowers and undertake econometric analysis providing evidence that increased remittance inflows are associated with a weaker transmission. As independent monetary policy becomes impaired, this result is consistent with earlier findings that recipient countries tend to favor fixed exchange rate regimes. Mode of access: Internet Chami, Ralph. Ebeke, Christian. Oeking, Anne. IMF Working Papers; Working Paper ; No. 2016/044 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/044/001.2016.issue-044-en.xml IMF e-Library