Do Remittances Induce Inflation? Fresh Evidence from Developing Countries‪.‬

1. Introduction There is now a growing interest in the economic and institutional determinants of inflation, mainly because they have implications for monetary policy. As a result, there is a large and growing literature on the determinants of inflation (see, inter alia, Catao and Terrones 2005). There are only two studies in this regard that are closest to our work, but none of them have examined the impact of remittances on the inflation rate. Aisen and Veiga (2006) examined the relationship between inflation, political instability, and institutions using a data set covering 97 countries. Of these, 75 were developing countries. Their work was based on data covering the period ranging from 1960 to 1999. They used a dynamic panel data system generalized method of moments (GMM) estimator and within-group (fixed effects) estimator and found that a higher degree of political instability generates higher inflation. They also found that trade openness and economic growth reduced inflation, while growth in oil prices and the U.S. Treasury bill rate increased inflation.