A Darwinian Perspective on 'Exchange Rate Undervaluation'

67 Pages Posted: 29 Dec 2015  

Qingyuang Du

Monash University

Shang-Jin Wei

Asian Development Bank

Date Written: October 2015

Abstract

This paper studies how status competition for marriage partners can generate surprising effects on the real exchange rate (RER). In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the RER. The effect can be quantitatively large if the biological desire for a marriage partner is strong. We also provide within-the People’s Republic of China and cross-country empirical evidence to support the theory. As an application, our cross-country estimation suggests that sex ratio as well as other factors in the existing literature can account for the recent evolution in Chinese RER almost completely.

Keywords: currency manipulation, equilibrium real exchange rate, surplus men

JEL Classification: F3, F4, J1, J7

Suggested Citation

Du, Qingyuang and Wei, Shang-Jin, A Darwinian Perspective on 'Exchange Rate Undervaluation' (October 2015). Asian Development Bank Economics Working Paper Series No. 456. Available at SSRN: https://ssrn.com/abstract=2708821 or http://dx.doi.org/10.2139/ssrn.2708821

Qingyuang Du

Monash University ( email )

Wellington Road
Victoria, Roodepoort 3145
Australia

Shang-Jin Wei (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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