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Demographic Changes and Real Exchange Rates: Future of an Aging Economy

Author

Listed:
  • Sangyup Choi

    (Yonsei University)

  • Chaewon Kim

    (Yonsei University)

  • Inhwan So

    (Hongik University)

Abstract

We examine the role of demographic change in long-run real exchange rate (RER) determination. Demographic shifts affect saving and investment behavior, labor supply, and the relative demand for tradable and non-tradable goods, and may therefore influence RERs beyond standard macroeconomic fundamentals. We estimate a panel cointegration model for 75 countries over 1970-2024 that augments a standard long-run RER specification with four demographic variables: the old-age dependency ratio, fertility, life expectancy, and net migration. Demographic variables remain informative even after controlling for productivity. We also complement the baseline specification with a full age-distribution approach, which provides an internally consistent representation of demographic change. Combining the estimated long-run relationships with projections from the United NationsWorld Population Prospects, we construct conditional RER projections through 2050. Economies projected to age more rapidly tend to face long-run real appreciation pressure.

Suggested Citation

  • Sangyup Choi & Chaewon Kim & Inhwan So, 2026. "Demographic Changes and Real Exchange Rates: Future of an Aging Economy," Working papers 2026rwp-285, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2026rwp-285
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    References listed on IDEAS

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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