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A Darwinian Perspective on "Exchange Rate Undervaluation"

Qingyuan Du and Shang-Jin Wei

No 16788, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2011-02
Note: AP IFM
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Published as Du, Qingyuan & Wei, Shang-Jin, 2016. "A Darwinian perspective on “exchange rate undervaluation”," European Economic Review, Elsevier, vol. 83(C), pages 111-138.

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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" (2012) Downloads
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