Artificial Intelligence and the Real Exchange Rate

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Studies of International Finance ›› 2024, Vol. 0 ›› Issue (3) : 63-75.

He Yao¹, Zhang Jing¹, Liu Xiaohui²

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Abstract

Intelligence Artificial（AI）will be the new driving force for the world economy. The studies on the economic impact of AI have been one of the hottest topics in economics. However, there are not enough studies on how AI can exert its impact in the field of international trade and international finance.
This paper studies the impact of intelligence level on the real exchange rate by introducing the artificial intelligence in Balassa-Samuelson model（B-S model）. The theoretical model shows that an increase of intelligence level in tradable sector appreciates the real exchange rate, while the increase of intelligence level in non-tradable sector depreciates the real exchange rate. This paper empirically tests the theoretical hypothesis by using installed stock of industrial robot as the proxy variable of artificial intelligence, along with year' 1993-2019 balanced panel data from 72 countries or regions, sourced from the International Federation of Robotics, Penn Table 10.0 and World Development Index.
The empirical results show that, an increase of intelligence level in tradable sector appreciates the real exchange rate, conclusion that holds after robustness checks and addressing endogeneity concerns. However, the increase of intelligence level in non-tradable sector depreciates the real exchange rate is statistically unrobust. The extended results show that, firstly, there is a lagging effect on the impact of intelligence level on the real exchange rate. Secondly, the increase in the intelligence level of manufacturing appreciates the real exchange rate, while the increase in intelligence level of constructure depreciates the real exchange rate. Thirdly, the improvement of intelligence level in OECD members' tradable sectors appreciates the real exchange rate, while the improvement of intelligence level in OECD members' non-tradable sectors depreciates the real exchange rate. However, the intelligence level of both sectors in non-OECD member has no significant impact on the real exchange rate.
This paper has two marginal contributions, firstly, discusses the impact of AI on the real exchange rate, which enriches the literatures on the economic impact of AI and the determination of the real exchange rate. Secondly, introduces the economic modeling method of AI into the B-S model, which lays a foundation for further research in the future.

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Artificial Intelligence / Intelligence Degree / Real Exchange Rate / B-S Model

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He Yao, Zhang Jing, Liu Xiaohui. Artificial Intelligence and the Real Exchange Rate[J]. Studies of International Finance, 2024, 0(3): 63-75

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Published
2024-03-12
Issue Date
2024-03-18

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