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This paper uses a stochastic dynamic general equilibrium model to investigate the influence of countercyclical remittances on the conduct of fiscal and monetary policy and trace their effects on real and nominal variables in a business cycle setting. We show that remittances raise disposable income and consumption, and insure against income shocks, thereby raising household welfare. However, remittances increase the correlation between labor and output, thereby producing a more volatile business cycle and increasing output and labor market risk. Optimal monetary policy in the presence of remittances deviates from the Friedman rule, highlighting the need for independent government policy instruments.

Electronic books. -- local. --- Emigrant remittances -- Econometric models. --- Fiscal policy -- Econometric models. --- Monetary policy -- Econometric models. --- Political Science --- Law, Politics & Government --- Immigration & Emigration --- Emigrant remittances --- Fiscal policy --- Monetary policy --- Econometric models. --- Tax policy --- Taxation --- Immigrant remittances --- Remittances, Emigrant --- Government policy --- Economic policy --- Finance, Public --- Foreign exchange --- Exports and Imports --- Labor --- Macroeconomics --- Financial Markets and the Macroeconomy --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Remittances --- Demand and Supply of Labor: General --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- Personal Income and Other Nonbusiness Taxes and Subsidies --- International economics --- Labour --- income economics --- Welfare & benefit systems --- Labor supply --- Income --- Consumption --- Labor taxes --- Balance of payments --- National accounts --- Taxes --- International finance --- Labor market --- Economics --- Income tax --- United States