A DSGE-RBC Approach to Measuring Impacts of Wealth Transfers

In this paper we quantify the impact of wealth transfers such as remittances and foreign aid using a DSGE-RBC model. We calibrate and simulate the model using data from 85 recipient countries. Within this framework we demonstrate: First, the income eect created from a permanent increase in wealth transfers could actually reduce output. The net impact of permanent wealth transfers on disposable income in the long run is zero. Second, positive temporary wealth transfer shocks have a lagged positive response on output provided that persistence is suciently low, but these eects are small in comparison to other aggregate shocks.