Philippine Standard time

Remittances from Overseas Filipinos in the Time of COVID-19: Spillovers and Policy Imperatives

This paper examines two policy questions. First, has the COVID-19 pandemic have had a significant impact on the remittances of overseas Filipino (OF) remittances? Second, what are the spillover effects of a shock in remittances on the monetary, financial, and labor markets? Using a reduced-form equation on the drivers of overseas remittances estimated by Generalized Method of Moments (GMM) and Impulse Response Functions from standard and Bayesian Vector Autoregressive (VAR) models from January 2009 to December 2021, our findings reveal that first, OFs’ remittances are procyclical with the Gross Domestic Product (GDP) of the Philippines and with major host country groups. Second, the growth of personal remittances is driven by domestic inflation, interest rate differentials, the real effective exchange rate of trading partners, the business cycle of the United States, and the growth of domestic liquidity (which proxies for the degree of financial development). Third, the pandemic has a negative and significant impact on the growth of personal remittances. Fourth, labor force growth, minimum wage rate and employment growth, along with the growth of real GDP, inflation rate, interest rate differential, peso-dollar rate, growth of domestic liquidity respond to a one standard deviation shock on the growth in personal remittances. These results imply that remittance flows indeed represent an important and distinct channel of spillover effects from the global economy and must be considered when examining global transmission shocks.


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