| Summary: | This paper explores to what extent Egyptian remittances inflows serve as a hedge against macroeconomic shocks. This is the first study applied on Egypt focusing on both the determinants of remittances and their cyclical behavior at the same time. By estimating a vector error correction (VEC) model, it was found that remittances inflows were associated significantly with real per capita income, money supply and oil price, in both long and short run. This indicated that remittance flows to Egypt were for investment and not for family support purposes. The analysis of impulse response functions confirmed that remittances inflows were procyclical with output shocks, reducing support for the ability of remittances as a hedge against macroeconomic shocks. This paper suggests that; policy makers should deal cautiously with the different aspects of remittances and its analysis could be applied to other small open economies.
Keywords: Remittances; business cycle; macroeconomic shocks; Egypt.
JEL Classifications: E32; F22; F24; O54.
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