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Age Structure and the Real Exchange Rate

Author

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  • Jacob Braude

    (Bank of Israel)

Abstract

This paper reports an empirical finding on the relation between the age structure of economies and their real exchange rate. The relation varies with the level of development. Among developed countries a 10 percentage point higher ratio of old people to the working age population is associated with a 12-15 percent higher price level. In middle income developing economies, a 10 percentage point increase in the ratio of children to the working age population is related to a 4 percent increase in the price level. The real exchange rate reflects the relative price of nontradables. A simple model attributes the findings to the effect of the age groups on the demand for nontradables. Its calibration indicates that the suggested explanation can account for a substantial part of the observed effect of the elderly. It is also consistent with the finding that the impact of children is much smaller. The fact that the significance of the elderly is limited to developed countries further supports the argument.

Suggested Citation

  • Jacob Braude, 2000. "Age Structure and the Real Exchange Rate," Bank of Israel Working Papers 2000.10, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2000.10
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    References listed on IDEAS

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    Cited by:

    1. Yukio Fukumoto & Tomoko Kinugasa, 2019. "How Different are demographic impacts on trade openness by geographic region?:Findings from Europe,Asia,America,and Africa," Discussion Papers 1912, Graduate School of Economics, Kobe University.
    2. Aloy, Marcel & Gente, Karine, 2009. "The role of demography in the long-run Yen/USD real exchange rate appreciation," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 654-667, December.
    3. Yukio Fukumoto & Tomoko Kinugasa, 2017. "Age Structure and Trade Openness: An Empirical Investigation," The World Economy, Wiley Blackwell, vol. 40(6), pages 1247-1263, June.
    4. Matthieu Bussiere & Georgios Chortareas & Rebecca Driver, 2003. "Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 269-286, Spring.
    5. Xiaohui Liu & Zhihao Zhou & Jing Zhang, 2023. "Longevity, Fertility, and the Real Exchange Rate," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(2), pages 26-57, March.
    6. Max Groneck & Christoph Kaufmann, 2014. "Relative Sectoral Prices and Population Ageing: A Common Trend," Working Paper Series in Economics 69, University of Cologne, Department of Economics.
    7. Max Groneck & Christoph Kaufmann, 2017. "Determinants of Relative Sectoral Prices: The Role of Demographic Change," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(3), pages 319-347, June.
    8. Andrew K. Rose & Saktiandi Supaat & Jacob Braude, 2009. "Fertility and the real exchange rate," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 496-518, May.
    9. Vaittinen, Risto & Vanne, Reijo, 2020. "Finland’s slow recovery from the financial crisis: A demographic explanation," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).

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