Research On The Impact Of Population Aging On Real Exchange Rate

The real exchange rate(RER)is the ratio of the exchange of goods between the two countries and is obtained by adjusting the nominal exchange rate for the relative price of the two countries.It shows the relative price levels of the two countries,and Its change will affect a country’s foreign commerce and international economic and commercial activities.In terms of the study of the influencing factors of real exchange rates,the early classical research mainly focused on variables such as productivity,government expenditure,market systems,international capital flows.however,they are also influenced by changes in population.Therefore we need to go further in this area.Meanwhile,as the most important factor,the population has been changed,and according to the international definition criteria,our country officially entered the aging society in the year 2000,and the aging of our country is gradually deepening.The phenomenon of continuous supply of labor in the past has been reversed,and the development advantages that we used to rely on are dissipating,the labor shortage caused by aging will become a problem that we have to face in the future.So a better understanding of the relationship between demographics and RER is essential for coping with new international economic changes under this situation.Current research has only hypothesized the direction and relative power of the internal mechanism by estimating the combined effect.Such speculations lack strong empirical support.This paper estimates the combined effect using data for 29 provinces in China from1998-2017 and identifies the specific direction of the effect.Moreover,using IRER is more reasonable to the logic of the BS effect,which is an improvement on the existing research.Meanwhile,this paper introduces land finance as the control variables for the first time based on objective facts in China.Finally,on the basis of the baseline regression,this paper regresses the sample in groups according to the level of infrastructure and considers the difference in the effect under different infrastructure levels.Based on a theoretical review,this paper analyzes the internal mechanisms and uses provincial panel data to construct a two-way fixed effect model for benchmark regression.Finally this paper uses the mediation effect method to recognize the internal mechanism.The conclusions are as follows:Firstly,currently,the growing aging of our country will lead to an appreciation of the internal real exchange rate.This indicates that aging in a country will put pressure on the RER to appreciate.This is the same as some of the results of the existing literature.Secondly,regarding BS effect,the effect of aging on RER is significantly positive through knowledge-experience spillover,forcing firms to upgrade their technological innovation,and promoting human capital upgrading is stronger than the negative effect it generates.In terms of demand structure effect,the effect is significantly positive,indicating that deeper aging increases demand for the non-tradable sector through social consumption preferences and government transfers,raising the relative price of non-tradable goods and leading to an increase in the internal real exchange rate.Thirdly,among the control variables,land finance leads to a drop in the IRER.It may lower the productivity of the tradable sector by distorting land prices and squeeze out consumption demand by raising house prices,leading to a decline in the IRER.Rural labor migration disables the wage convergence mechanism by weakening the BS effect,leading to a declining IRER.But the coefficient is not significant in the benchmark regression,so this result and interpretation may lack accuracy.Fourthly,the influence of aging on the IRER shows positive in all regions with different levels of infrastructure.However,the effect is greater in province with higher levels of infrastructure,probably because it promotes market connectivity and makes the economy more efficiently.Meanwhile,service industries are more developed in those places,so the needs of old people can be fully met.Therefore,the lifting impact is greater than that of province with lagging service sector development.Finally,this paper makes suggestions in terms of industrial restructuring,talent and labor productivity dividends,and improving elderly services.