Discussion Paper Details
Please find the details for DP8872 in an easy to copy and paste format below:
Title: A Darwinian Perspective on "Exchange Rate Undervaluation"
Author(s): Qingyuang Du and Shang-Jin Wei
Publication Date: March 2012
Keyword(s): currency manipulation, equilibrium real exchange rate and surplus men
Programme Area(s): Development Economics
Abstract: Though the real exchange rate is a key price for most economies, our understanding of its determinants is still incomplete. This paper studies the implications of status competition in the marriage market for the real exchange rate. In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the real exchange rate (RER) through both a savings channel and an effective labor supply channel. The effects can be quantitatively large if the biological desire for a marriage partner is strong. Empirically, we show that within China, those regions with a faster increase in the sex ratio also exhibit a faster decline in the RER (the relative price of nontradables). Furthermore, across countries, those with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. As an application, the estimation suggests that these structural factors can account for the Chinese exchange rate almost completely.
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Du, Q and Wei, S. 2012. 'A Darwinian Perspective on "Exchange Rate Undervaluation"'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8872