Remittance's Inflows volatility in four Balkans countries using ARCH/GARCH model

Abstract

This research aims to explore the dynamics of remittances and their volatility applying the ARCH/GARCH model in the countries of the Balkans (Bosnia and Herzegovina, Macedonia, Croatia and Albania). The World Bank annual aggregate data on personal remittances inflows as percentage of GDP from 1998-2019 were used. The volatility spillover within the countries can be noticed. It means that remittance’s inflow volatility in these countries is influenced by its own ARCH and GARCH factors or own shocks. The variance is time varying for all countries, but mostly varying for Bosnia and Herzegovina. The estimated coefficients within the Diagonal VECH class of ARCH/GARCH models are positive and significant confirming the expectation that bigger shocks or variations of the conditional variance of remittances in the past are followed by higher volatility movements of the remittances today. The empirical performances of our model have been confirmed with some findings in the existing literature.