A Darwinian Perspective on "Exchange Rate Undervaluation"

Qingyuan Du, Shang-Jin Wei

NBER Working Paper No. 16788
Issued in February 2011
NBER Program(s):   AP   IFM

Though the real exchange rate is a key price for most economies, our understanding of its determinants is still incomplete. This paper studies the implications of status competition in the marriage market for the real exchange rate. In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the real exchange rate (RER) through both a savings channel and an effective labor supply channel. The effects can be quantitatively large if the biological desire for a marriage partner is strong. Empirically, we show that within China, those regions with a faster increase in the sex ratio also exhibit a faster decline in the RER (the relative price of nontradables). Furthermore, across countries, those with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. As an application, the estimation suggests that these structural factors can account for the Chinese exchange rate almost completely.

download in pdf format
   (558 K)

email paper

This paper is available as PDF (558 K) or via email.

This paper was revised on May 17, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16788

Users who downloaded this paper also downloaded these:
Du and Wei w16000 A Sexually Unbalanced Model of Current Account Imbalances
Wei and Zhang w16800 Sex Ratios, Entrepreneurship, and Economic Growth in the People's Republic of China
Chinn and Wei w14420 A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?
Wei and Zhang w15093 The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China
Yang, Zhang, and Zhou w16771 Why Are Saving Rates so High in China?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us