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

  • Aloy, Marcel
  • Gente, Karine

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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