Immigration, Remittances, and Business Cycles

Federico S. Mandelman and Andrei Zlate
Working Paper 2008-25b
Revised February 2012

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Using data on border enforcement and macroeconomic indicators from the United States and Mexico, we estimate a two-country business cycle model of labor migration and remittances. The model matches the cyclical dynamics of unskilled migration and documents the insurance role of remittances in consumption smoothing. Over the cycle, immigration increases with the expected stream of future wage gains, but it is dampened by a sunk emigration cost. Migration barriers slow the adjustment of the stock of immigrant labor, enhancing the volatility of unskilled wages and remittances. Changes in border enforcement have asymmetric welfare implications for the skilled and unskilled households.

JEL classification: F22, F41

Key words: Labor migration, sunk emigration cost, skill heterogeneity, international business cycles, Bayesian estimation

This paper is a significantly revised version of "Immigration and the Macroeconomy." The authors acknowledge Gustavo Canavire and Menbere Shiferaw for superb research assistance. They thank Esteban Rossi-Hansberg, an anonymous referee, discussants Mario Crucini, Bora Durdu and Antonio Spilimbergo, as well as James Anderson, Susanto Basu, Fabio Ghironi, Matteo Iacoviello, Peter Ireland, Nobuhiro Kiyotaki, Giovanni Peri, Myriam Quispe-Agnoli, B. Ravikumar, Alessandro Rebucci, Pedro Silos, Nicole Simpson, Stephenie Young, and conference and seminar participants who provided helpful comments at the 2012 meeting of the American Economic Association, the Bank of Japan, the Bank of Spain, the Central Bank of the Philippines, the Atlanta Fed, the Boston Fed, the Federal Reserve Board, the Federal Reserve SCIEA 2008, Georgia Tech, the Inter-American Development Bank, the 2010 conference of the Latin American and Caribbean Economic Association, the National Bureau of Economic Research's Summer Institute 2009 (International Finance and Macroeconomics Program), North East Universities Development Consortium 2009, the Paris School of Economics, the 2010 conference of the Society of Government Economists, the Universidad de San Andrés, the University of Delaware, and the Econometric Society World Congress 2010. Part of this project was developed while Andrei Zlate was visiting the Federal Reserve Banks of Atlanta and, whose hospitality he gratefully acknowledges. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Board of Governors or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Federico Mandelman, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8785,, or Andrei Zlate, Board of Governors of the Federal Reserve System, Division of International Finance, 20th Street and Constitution Avenue, N.W., Washington, D.C., 20551,

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