Fertility and the Real Exchange Rate. Andrew K. Rose and Saktiandi Supaat with Jacob Braude. Andrew K. Rose and Suktiandi Supaat. Simple Intuition: What effect should fertility have on real exchange rate?.
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Andrew K. Rose
and Saktiandi Supaat
with Jacob Braude
Andrew K. Rose and
Simple Intuition: What effect should fertility have on real exchange rate?
Quick Survey of the Literature on real exchange rate
Ut = U(CNWt, CTWt) + βμtU(CNCt, CTCt)
+ ρU(CNRt+1, CTRt+1)
subject to budget constraint:
[PNtCNWt + PTtCTWt ]+ [μt(PNtCNCt + PTtCTCt)]
+ (1/(1+r*))(PNt+1CNRt+1 + PTt+1CTRt+1)
= (wt-τt) + b/(1+r*)
U(CNit, CTit) = αilogCNit + (1-αi)logCTit
i = W, C, R
If αC, αR > αW consumption of children, retirees biased towards non-tradeables (relative to workers)
αRlogCNRt + (1-αR)logCTRt
Total income φt(r*at + b)
YTt = LTtθTKTt1-θT
YNt = LNtθNKNt1-θN
Full Employment implies LTt + LNt = 1
YNt = CNWt + μtCNCt + φtCNRt
∂PNt/∂μt > 0 if (αC – αW) + αCρ > 0
Relative Price of Non-Tradeables rises with Elderly Dependency Ratio:
∂PNt/∂φt > 0 if
at(1+r*)αR(1+βμt+ρ) + b[(αR–αW)+(αR–αC)+αRρ] > 0
Default Estimating Equation on real exchange rate
log(reer)it = βfertit + γ1PPPit + γ2y/yusit + γ3openit
+ γ4TLit + γ5G/Yit + γ6growthit + γ7log(pop) it
+ γ8log(y) it + Σtφt + Σiθi + eit
Purchasing Power Parity deviation much disputed, important to enter for robustness
Here included via absolute term from PWT 6.2
Supply (“Balassa-Samuelson”) Effects of differential productivity growth included via three common proxies
National/American Real GDP per capita
Growth Rate (Chinn)
Log of Real GDP per capita
Potential Multicollinearity with fertility!
Data Set Determination
Country List Determination
Real Effective Exchange Rates against Fertility Determination
Log REER against Fundamentals Determination
Descriptive Statistics Determination
Simple Bivariate Correlations Determination
Approximate standard error for default (augmented) sample correlations = .05 (.06).
Benchmark Results Determination
Sensitivity Analysis Determination
No evidence of non-linearity relationship between fertility and the real exchange rate
Simultaneity/Measurement Error and the real exchange rate
“We also find that female educational attainment has a pronounced negative effect on fertility …”
Sensitivity Analysis: Key Regressor and the real exchange rate
Adding Different Age Cohorts and the real exchange rateto the RER Equation
Fertility, and Savings, Investment and the real exchange rateand Current Account
Summary: 1 and the real exchange rate
Some Positive Results!
Find statistically significant and robust link between fertility and the exchange rate.
Instrument variables just raises estimate
Other demographic effects estimated sensibly but with less precision (sample variation?)