Population Age Structure And Real Exchange Rate

Studying changes in the real exchange rate is a key area of exchange rate theory, early studies include real exchange rate factors and equilibrium exchange rate determine. Studying the real exchange rate from population age structure is the new direction emerged last decade, changes in the population age structure have an impact on investment, savings, productivity and other variables, these variables have close links with the real exchange rate, therefore, there has important practical significance for researching the effects of changes in the population age structure on real exchange rate. This paper not only concerned about the combined effects of changes in population age structure on the exchange rate through different mechanisms, but also concerned about the individual impacts of these transmission mechanisms.Firstly, this paper examines the internal transmission mechanisms of population age structure on real effective exchange rate based on165countries panel date over1996-2012periods. The empirical results show that:the shares of working age population has significant negative effect on real effective exchange rate through demand structure mechanism, and positive effect through "Balassa-Samuelson effect" mechanism, but current account mechanism is not significant. And the "Balassa-Samuelson effect" mechanism is predominating of the three transmission mechanisms; leading to the shares of working age population has combined positive effect on real effective exchange rate.Then, this paper examines the internal transmission mechanisms of population age structure on real effective exchange rate based on28developed countries panel date and137developing countries panel date over1996-2012periods. The empirical results show that:in developed countries, the combined effects and individual impacts of changes in population age structure on the effective exchange rate through different mechanisms are not significant; in developing countries, the shares of working age has significant negative effect on real effective exchange rate through demand structure mechanism, and positive effect through "Balassa-Samuelson effect" mechanism, but current account mechanism is not significant. And the "Balassa-Samuelson effect" mechanism is predominating of the three transmission mechanisms; leading to the shares of working age population has combined positive effect on real effective exchange rate.Finally, this paper examines the internal transmission mechanisms of population age structure on real effective exchange rate with the change of time. The empirical results show that:in1998-2007, the negative effect of demand structure mechanism weakened, but the positive effect of "Balassa-Samuelson effect" mechanism strengthened, leading to the combined positive effect strengthened; after2008, the negative effect of demand structure mechanism strengthened, the positive effect of "Balassa-Samuelson effect" mechanism weakened, but the "Balassa-Samuelson effect" mechanism is still dominant, leading to the combined effect is positive.Based on the conclusions of this paper, Chinese government should take some measures to curb the RMB real exchange rate appreciation due to population aging problem through demand structure mechanism, maintain national competitiveness.