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Demographics and The Real Exchange Rate

Giagheddu, Marta LU and Papetti, Andrea (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:
author
and
publishing date
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}},
}