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The Impact of Demography on the Real Exchange Rate

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Author Info

  • Andersson, Andreas

    (Department of Economics)

  • Österholm, Pär

    ()
    (Department of Economics)

Abstract

Theory predicts that life cycle saving mechanisms will cause real exchange rate variations as the age structure varies. We investigate the impact of demography on the Swedish real exchange rate, measured as the real TCW index, during 1960 to 2000. Time series regressions show that the Swedish demographic structure has significant explanatory power on the real exchange rate. A model using age shares alone as regressors is used for medium term out-of-sample forecasts, outperforming both a naive forecast and forecasts based on an autoregressive model. Finally we use the estimated model in order to make forecasts of the Swedish real exchange rate up to 2015. The model predicts that the Swedish age structure will have a depreciating effect on the real exchange rate up to 2007 followed by an appreciating effect in the end of the forecasting period.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2001:11.

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Length: 37 pages
Date of creation: 15 Mar 2001
Date of revision:
Publication status: Published in Applied Economics Letters , 2005, pages 267-272.
Handle: RePEc:hhs:uunewp:2001_011

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Related research

Keywords: Demography; Real exchange rate; Forecasts;

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References

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  1. Lindh, T. & Malmberg, B., 1999. "Age Distributions and the Current Account - A Changing Relation?," Papers 1999:21, Uppsala - Working Paper Series.
  2. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
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  7. Blomquist, N S & Wijkander, H, 1994. "Fertility Waves, Aggregate Savings and the Rate of Interest," Journal of Population Economics, Springer, vol. 7(1), pages 27-48.
  8. Lindh, Thomas, 1999. "Medium-Term Forecasts of Potential GDP and Inflation Using Age Structure Information," Working Paper Series 99, Sveriges Riksbank (Central Bank of Sweden).
  9. David E. Bloom & Jeffrey D. Sachs, 1998. "Geography, Demography, and Economic Growth in Africa," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 207-296.
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  17. Alexius, Annika, 1996. "Long Run Real Exchange Rates - A Cointegration Analysis," Working Paper Series in Economics and Finance 119, Stockholm School of Economics.
  18. Lenehan, A. J., 1996. "The macroeconomic effects of the postwar baby boom: Evidence from Australia," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 155-169.
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Citations

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Cited by:
  1. Lindh, Thomas & Malmberg, Bo, 2002. "Swedish post-war economic development. The role of age structure in a welfare state," Arbetsrapport 2003:4, Institute for Futures Studies.
  2. Lindblad, Hans & Sellin, Peter, 2003. "The Equilibrium Rate of Unemployment and the Real Exchange Rate: An Unobserved Components System Approach," Working Paper Series 152, Sveriges Riksbank (Central Bank of Sweden).
  3. Österholm, Pär, 2004. "Estimating the Relationship between Age Structure and GDP in the OECD Using Panel Cointegration Methods," Working Paper Series 2004:13, Uppsala University, Department of Economics.
  4. Leon Bettendorf & Hans Dewachter, 2007. "Ageing and the Relative Price of Nontradeables," Tinbergen Institute Discussion Papers 07-064/2, Tinbergen Institute.

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