Fertility and the Exchange Rate

Fertility has been a long-standing preoccupation of the authorities in Singapore, so it is perhaps not surprising that the Monetary Authority of Singapore should examine the links between fertility and the exchange rate:

We use a quinquennial data set covering 87 countries between 1975 and 2005 to investigate the relationship between fertility and the real effective exchange rate.  Theoretically a country experiencing a decline in its fertility rate can be expected to have higher savings, lower investment, a current account surplus, and accordingly a real depreciation.  We test and confirm this hypothesis, controlling for a host of potential determinants such as PPP deviations and the Balassa-Samuelson effect.  We find a statistically significant and robust link between fertility and the exchange rate.  Our point-estimate is that a decline in the fertility rate of one child per woman is associated with a depreciation of approximately .15% in the real effective exchange rate.

The number of births in Australia in the year-ended December 2006 was the highest in 35 years, while the real effective exchange rate in Q4 2006 was the highest since Q1 1985.

posted on 13 June 2007 by skirchner in Economics, Financial Markets

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