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The Impact of Demography on the Real Exchange Rate

  • Andersson, Andreas

    (Department of Economics)

  • Österholm, Pär

    ()

    (Department of Economics)

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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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
Web page: http://www.nek.uu.se/
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  1. 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.
  2. Lindh, Thomas & Malmberg, Bo, 1999. "Age Distributions and the Current Account -A Changing Relation?," Working Paper Series 1999:21, Uppsala University, Department of Economics.
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  8. Thomas Lindh, 2004. "Medium-term forecasts of potential GDP and inflation using age structure information," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 19-49.
  9. 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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  12. Lindh, Thomas & Malmberg, Bo, 1998. "Age structure and inflation - a Wicksellian interpretation of the OECD data," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 19-37, July.
  13. Hali J. Edison & Eric Fisher, 1989. "A long-run view of the european monetary system," International Finance Discussion Papers 339, Board of Governors of the Federal Reserve System (U.S.).
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  15. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 491-503, November.
  16. repec:cup:cbooks:9780521634809 is not listed on IDEAS
  17. Alexius, Annika, 1996. "Long Run Real Exchange Rates - A Cointegration Analysis," SSE/EFI Working Paper Series in Economics and Finance 119, Stockholm School of Economics.
  18. Ronald Mac Donald, 1998. "What Do We Really Know About Real Exchange Rates?," Working Papers 28, Oesterreichische Nationalbank (Austrian Central Bank).
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