DP6312 Fertility and the Real Exchange Rate

Author(s): Andrew K Rose , Saktiandi Supaat

Publication Date: May 2007

Keyword(s): cross-country , data , demographic , effective , empirical , multilateral , panel

JEL(s): F32 , J13

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP6312.asp

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.