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Mean reversion and predictability of remittances

Mean reversion and predictability of remittances Purpose – The purpose of this paper is to examine the predictability of remittances in individual developing countries. It achieves this objective by testing for mean reversion (i.e. stationarity) in the monthly remittance series reported to the World Bank by 21 developing countries. Design/methodology/approach – Unit root tests on remittance time series are undertaken using three tests – the augmented Dickey-Fuller test, the Phillip-Peron test and the Kwiatkowshi, Phillips, Schmidt and Shin test. Stationarity of series in levels would indicate mean reversion and predictability of remittances. Findings – The paper finds significant evidence of mean reversion and hence predictability in remittance inflows in 17 developing countries. Practical implications – Remittance inflows, which have become an important source of external finance for many developing countries, are not random flows but a stable and predictable stream of financial flows. Originality/value – Prior research has focused on volatility of remittances in comparison with other capital flows and then inferred stability from them having lower volatility. Using available monthly data, this paper is the first to directly test for mean reversion and hence predictability of remittances. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Social Economics Emerald Publishing

Mean reversion and predictability of remittances

International Journal of Social Economics , Volume 41 (12): 11 – Nov 25, 2014

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References (18)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0306-8293
DOI
10.1108/IJSE-02-2014-0038
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the predictability of remittances in individual developing countries. It achieves this objective by testing for mean reversion (i.e. stationarity) in the monthly remittance series reported to the World Bank by 21 developing countries. Design/methodology/approach – Unit root tests on remittance time series are undertaken using three tests – the augmented Dickey-Fuller test, the Phillip-Peron test and the Kwiatkowshi, Phillips, Schmidt and Shin test. Stationarity of series in levels would indicate mean reversion and predictability of remittances. Findings – The paper finds significant evidence of mean reversion and hence predictability in remittance inflows in 17 developing countries. Practical implications – Remittance inflows, which have become an important source of external finance for many developing countries, are not random flows but a stable and predictable stream of financial flows. Originality/value – Prior research has focused on volatility of remittances in comparison with other capital flows and then inferred stability from them having lower volatility. Using available monthly data, this paper is the first to directly test for mean reversion and hence predictability of remittances.

Journal

International Journal of Social EconomicsEmerald Publishing

Published: Nov 25, 2014

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