Demographics and The Real Exchange Rate
(2020)- Abstract
- We develop a two-country, two-sector overlapping generations model to examine the effect of population aging on the real exchange rate (RER). While an older population raises the relative demand for nontradables (a feature of structural transformation) putting upward pressure on relative prices thus appreciating the RER, it also implies a lower real interest rate (distinctive of secular stagnation) that dampens the elderly nontradables consumption and thus mitigates the RER appreciation. We quantify a general equilibrium effect of 0.1% RER appreciation following a rise by 1% in the relative old dependency ratio in line with our empirical estimates.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/d62caef6-221c-4311-aa06-0b56d981d032
- author
- Giagheddu, Marta LU and Papetti, Andrea
- publishing date
- 2020
- type
- Working paper/Preprint
- publication status
- published
- subject
- keywords
- population aging, real exchange rate, life-cycle saving, consumption composition, F31, F41, J11
- publisher
- SSRN
- DOI
- 10.2139/ssrn.3358551
- language
- English
- LU publication?
- no
- id
- d62caef6-221c-4311-aa06-0b56d981d032
- date added to LUP
- 2022-03-25 14:57:57
- date last changed
- 2022-03-28 12:58:41
@misc{d62caef6-221c-4311-aa06-0b56d981d032, abstract = {{We develop a two-country, two-sector overlapping generations model to examine the effect of population aging on the real exchange rate (RER). While an older population raises the relative demand for nontradables (a feature of structural transformation) putting upward pressure on relative prices thus appreciating the RER, it also implies a lower real interest rate (distinctive of secular stagnation) that dampens the elderly nontradables consumption and thus mitigates the RER appreciation. We quantify a general equilibrium effect of 0.1% RER appreciation following a rise by 1% in the relative old dependency ratio in line with our empirical estimates.}}, author = {{Giagheddu, Marta and Papetti, Andrea}}, keywords = {{population aging; real exchange rate; life-cycle saving; consumption composition; F31; F41; J11}}, language = {{eng}}, note = {{Working Paper}}, publisher = {{SSRN}}, title = {{Demographics and The Real Exchange Rate}}, url = {{http://dx.doi.org/10.2139/ssrn.3358551}}, doi = {{10.2139/ssrn.3358551}}, year = {{2020}}, }