Shocks to net migration can matter for the business cycle. Using an estimated dynamic stochastic general equilibrium model of a small open economy, we find that migration shocks account for a considerable proportion of the variability of per capita GDP. For the capital investment and consumption components of per capita GDP, migration shocks matter, but are not the key drivers. Migration shocks are also important for residential investment and real house prices, but they are not the only, or indeed most important, drivers of these variables. The level of human capital possessed by migrants, relative to that of locals, materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has higher levels of human capital than locals, as seems to be common in most OECD economies, a migration shock has an expansionary effect on per capita GDP and its components.
About the presenters
Christie Smith is the manager of the Research team at the Reserve Bank of New Zealand. He has previously worked at the Bank of Papua New Guinea and Norges Bank. Christie is a co-director of the Macro Policy Frameworks programme at the Centre for Applied Macroeconomic Analysis, at the Australian National University, and is on the board of the Australasian Macroeconomics Society.
Christoph Thoenissen is a professor of economics at the University of Sheffield. Before joining Sheffield, Christoph was based at the School of Economics and Finance at Victoria University of Wellington, where he was Professor of Macroeconomics. Prior to that, he was a lecturer in economics at the universities of St Andrews and Reading, as well as an economist at the Bank of England. Christoph is also a programme director at the Centre for Applied Macroeconomic Analysis at ANU as well as an associate editor at the Bulletin of Economic Research. He holds a DPhil in economics from the University of York.