Relationship between Remittances and Inflation in Nepal

Authors

  • Kiran Dahal Assistant Manager, Nepal Bank Limited, Kathmandu, Nepal
  • Arbind Chaudhary Lead Researcher, Research Centre for Development Studies, Kathmandu, Nepal
  • Naveen Adhikari Assistant Professor, Central Department of Economics, Tribhuvan University, Nepal
  • Nawaraj Bista Legal Officer, Election Commission, Nepal

DOI:

https://doi.org/10.3126/jodas.v27i1-2.60566

Keywords:

Remittance, Inflation, Financing, Money supply, Error Correction Model (ECM)

Abstract

Empirical evidence highlights the significant impact of remittances on a country’s macroeconomic indicators. This holds particular significance for import-dependent developing nations like Nepal, where remittances serve as a crucial source of foreign currency earnings and facilitate the financing of imports. However, there remains a limited understanding of their implications for inflation, as their effects on inflation are contingent upon whether the demand or supply side is more influenced by remittances. This study leverages time series data and employs an error correction model (ECM) to explore the influence of remittances on the domestic price level. The findings indicate that the inflow of remittances has a dampening effect on the domestic inflation rate. This suggests that remittances have played a pivotal role in enabling the import of relatively more affordable goods from abroad, notwithstanding their impact on the overall expenditure of the economy. Furthermore, our research reveals that conventional macroeconomic indicators such as GDP, narrow money supply, and Indian inflation appear to exert pressure on domestic inflation in Nepal. These findings offer valuable insights into the complex relationship between remittances and inflation dynamics in the Nepalese context.

Downloads

Download data is not yet available.
Abstract
167
PDF
57

Downloads

Published

2019-12-31

How to Cite

Dahal, K., Chaudhary, A., Adhikari, N., & Bista, N. (2019). Relationship between Remittances and Inflation in Nepal. Journal of Development and Administrative Studies, 27(1-2), 1–10. https://doi.org/10.3126/jodas.v27i1-2.60566

Issue

Section

Articles