Does population transition influence real exchange rate? Empirical evidence from Australia
Salim, R. and Hassan, K. (2011) Does population transition influence real exchange rate? Empirical evidence from Australia. In: International Business Research Conference, 21 - 23 November, Sydney, Australia
This paper utilizes the empirical findings that age structure affects saving, investment and capital flow and hypothesizes that age structure influences the real exchange rate. Based on this link an empirical model is specified for Australia and estimated with annual data for the period 1970–2009. Unit root and cointegration analyses with structural break indicate that Australia’s real exchange rate is cointegrated with terms of trade, government expenditure, working age and old age population. Cointegrating vectors estimated by Fully Modified OLS (FMOLS) show that in the long run, terms of trade and government expenditure have appreciating and the two demographic variables have depreciating effects on Australia’s real exchange rate.
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