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The role of demography in the long-run Yen/USD real exchange rate appreciation

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  • Aloy, Marcel
  • Gente, Karine

Abstract

This paper aims to measure the contribution of an aging population to explain the real appreciation experienced by the Yen-US Dollar since 1980s. We develop a two-good overlapping-generation model of a semi-small open economy to highlight the link between the birth rate and the real exchange rate. In a creditor (debtor) country, an aging population causes a real exchange rate appreciation (depreciation) due to a positive (negative) wealth effect. Structural parameters are estimated by GMM using quarterly data between 1960 and 2001. Then, numerical simulations show that the long-run relationship between population growth and real exchange rate is negative between 1960 and 1971 and positive between 1971 and 2000. The decrease in population growth may account for a large part of the real appreciation experienced by the Yen/USD between 1971 and 2000.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 4 (December)
Pages: 654-667

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:4:p:654-667

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Real exchange rate Overlapping generations Demographics;

References

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  16. Karine Gente & Miguel Leon-Ledesma, 2006. "Does the world real interest rate affect the real exchange rate? The South East Asian experience," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(4), pages 441-467.
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Cited by:
  1. Kamrul Hassan & Ruhul Salim, 2011. "The linkage between relative population growth and purchasing power parity: Cross country evidence," International Journal of Development Issues, Emerald Group Publishing, vol. 10(2), pages 154-169, July.
  2. Rod Tyers, 2012. "Japanese Economic Stagnation: Causes and Global Implications," The Economic Record, The Economic Society of Australia, vol. 88(283), pages 517-536, December.
  3. Rod Tyers & Ying Zhang, 2011. "Japan's Economic Recovery: Insights from Multi-Region Dynamics," Economics Discussion / Working Papers 11-13, The University of Western Australia, Department of Economics.

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