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A Darwinian Perspective on "Exchange Rate Undervaluation"

Qingyuan Du and Shang-Jin Wei

No 8872, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: currency manipulation; equilibrium real exchange rate; surplus men (search for similar items in EconPapers)
JEL-codes: F3 F4 J1 J7 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-mon, nep-opm and nep-tra
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Journal Article: A Darwinian perspective on “exchange rate undervaluation” (2016) Downloads
Working Paper: A Darwinian Perspective on “Exchange Rate Undervaluation” (2015) Downloads
Working Paper: A Darwinian Perspective on "Exchange Rate Undervaluation" (2011) Downloads
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