A Darwinian Perspective on "Exchange Rate Undervaluation"
AbstractThough the real exchange rate is a key price for most economies, our understanding of its determinants is still incomplete. This paper studies the implications of status competition in the marriage market for the real exchange rate. In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the real exchange rate (RER) through both a savings channel and an effective labor supply channel. The effects can be quantitatively large if the biological desire for a marriage partner is strong. Empirically, we show that within China, those regions with a faster increase in the sex ratio also exhibit a faster decline in the RER (the relative price of nontradables). Furthermore, across countries, those with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. As an application, the estimation suggests that these structural factors can account for the Chinese exchange rate almost completely.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8872.
Date of creation: Mar 2012
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Other versions of this item:
- Qingyuan Du & Shang-Jin Wei, 2011. "A Darwinian Perspective on "Exchange Rate Undervaluation"," NBER Working Papers 16788, National Bureau of Economic Research, Inc.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- J1 - Labor and Demographic Economics - - Demographic Economics
- J7 - Labor and Demographic Economics - - Labor Discrimination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-MON-2012-03-28 (Monetary Economics)
- NEP-OPM-2012-03-28 (Open Economy Macroeconomics)
- NEP-TRA-2012-03-28 (Transition Economics)
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- Jane Golley & Rod Tyers, 2012. "Gender 'Rebalancing' in China: A Global-Level Analysis," CAMA Working Papers 2012-46, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Shang-Jin Wei & Xiaobo Zhang, 2011. "Sex Ratios, Entrepreneurship, and Economic Growth in the People’s Republic of China," NBER Working Papers 16800, National Bureau of Economic Research, Inc.
- Jane Golley & Rod Tyers, 2012. "China's Gender Imbalance and its Economic Performance," Economics Discussion / Working Papers 12-10, The University of Western Australia, Department of Economics.
- Virginia Di Nino & Barry Eichengreen & Massimo Sbracia, 2011. "Real Exchange Rates, Trade, and Growth: Italy 1861-2011," Quaderni di storia economica (Economic History Working Papers) 10, Bank of Italy, Economic Research and International Relations Area.
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