In order to examine the impact of remittances on the main macroeconomic (i.e. output and ination) in the Guatemalan economy, in this paper we develop and estimate a DSGE new Keynesian model. The model is estimated by Bayesian Methods using Quarterly data for the period 2003Q1 to 2011Q4. The model specication allow us to estimate a remittances function in a general equilibrium model for the Guatemalan economy, which we think is a relevant constribution of this paper. The ndings show that the lack of credibility is a source of macroeconomic volatility when there are monetary shocks. However, remittances shocks from the simulations performed in this study, considering scenarios of high and low credibility of monetary policy, show that the impact of remittances on output and ination are not signicantly
On December 2000, the National Congress of Guatemala enacted a bill named Ley de Libre Negociacion de Divisas, which makes it legal to trade in any foreign currency, eliminates the legal tender feature of the quetzal (the Guatemalan national currency), and allows the domestic banking sector to engage in Þnancial intermediation operations denominated in any foreign currency. This law will be effective on May 1, 2001. This paper develops a model intended to analyze the effects of the new law on the Guatemalan economy. In particular, a dynamic, perfect-foresight, general equilibrium model of a small-open economy with imperfect capital mobility is solved. The change in the legal regime is modeled as a change in some preference parameters. The model shows that, in the most plausible scenario, we should not expect to observe very important macroeconomic or foreing-exchange effects at the time when the new law becomes effective.
