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Age Structure and the Real Exchange Rate

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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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    3. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
    4. Robert M. Schmidt & Allen C. Kelley, 1996. "Saving, dependency and development," Journal of Population Economics, Springer;European Society for Population Economics, vol. 9(4), pages 365-386.
    5. Pablo GarcĂ­a, 1999. "Income Inequality and the Real Exchange Rate," Working Papers Central Bank of Chile 54, Central Bank of Chile.
    6. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc.
    7. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 269-328 National Bureau of Economic Research, Inc.
    8. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    9. Poterba, James M, 1998. "Demographic Change, Intergenerational Linkages, and Public Education," American Economic Review, American Economic Association, vol. 88(2), pages 315-320, May.
    10. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-286, June.
    11. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-334, March.
    12. Lewis, Frank D, 1983. "Fertility and Savings in the United States: 1830-1900," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 825-840, October.
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