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

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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.

Suggested Citation

  • Jahan Abdul Raheem & Gazi M. Hassan & Mark J. Holmes, 2021. "The Impact of Remittances on Monetary Transmission Mechanisms during the Pre and Post-Conflict Eras in Sri Lanka," Working Papers in Economics 21/10, University of Waikato.
    • Handle: RePEc:wai:econwp:21/10
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    More about this item

    Keywords

    remittances; monetary policy; transmission channels; conflict;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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