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USING DEMOGRAPHIC CHANGES TO REVISIT THE CONSUMPTION–REAL EXCHANGE RATE ANOMALY *
Author(s) -
CHEN SHIUSHENG
Publication year - 2013
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2011.02275.x
Subject(s) - economics , consumption (sociology) , odds , exchange rate , econometrics , anomaly (physics) , panel data , data set , macroeconomics , statistics , mathematics , logistic regression , social science , physics , sociology , condensed matter physics
I use a panel data set covering 26 OECD countries between 1960 and 2004 to revisit the consumption–real exchange rate anomaly. After using demographic variables (in particular, the fertility rate) as instruments, I document a new empirical regularity that higher real exchange rates are associated with higher relative consumption. This positive relationship is statistically significant and has been shown to be robust. Such a finding may suggest that the theoretical prediction in Backus and Smith ( Journal of International Economics , Vol. 35 (1993), pp. 297–316) is no longer at odds with the data.