Remittances and Relative Prices

Using Mexican data, this article analyzes the impact of the workers' remittances on the cross‐section distribution of prices as well as on the evolution of individual relative prices over time for 272 consumer items. The results suggest that there are important differences in the responses of relative prices to remittances according to various categories of these items. While the relative prices of a number of nontradable service items such as housing consistently rise, the relative prices of several durable items such as furniture tend to fall in response to the remittance shock. Furthermore, remittances explain substantial variation in prices for a large number of consumer durables and services at various time horizons. The relative price responses are more volatile over time for most food items and less volatile for nonfood and service items reflecting different degrees of price flexibility.