Working Paper: CEPR ID: DP6312
Authors: Andrew K. Rose; Saktiandi Supaat
Abstract: We use a quinquennial data set covering 87 countries between 1975 and 2005 to investigate the relationship between fertility and the real effective exchange rate. Theoretically a country experiencing a decline in its fertility rate can be expected to have higher savings, lower investment, a current account surplus, and accordingly a real depreciation. We test and confirm this hypothesis, controlling for a host of potential determinants such as PPP deviations and the Balassa-Samuelson effect. We find a statistically significant and robust link between fertility and the exchange rate. Our point-estimate is that a decline in the fertility rate of one child per woman is associated with a depreciation of approximately .15% in the real effective exchange rate.
Keywords: cross-country data; demographic; effective; empirical; multilateral; panel
JEL Codes: F32; J13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in fertility rate (J13) | Real exchange rate depreciation (F31) |
| Decline in fertility rate (J13) | Higher savings (D14) |
| Decline in fertility rate (J13) | Lower investment (G31) |
| Higher savings (D14) | Current account surplus (F32) |
| Lower investment (G31) | Current account surplus (F32) |
| Current account surplus (F32) | Real exchange rate depreciation (F31) |