Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them?
Mariana Colacelli and
Emilio Fernández Corugedo
No 18/248, IMF Working Papers from International Monetary Fund
Yes, partly. This paper studies the potential role of structural reforms in improving Japan’s outlook using the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) with newly-added demographic features. Implementation of a not-fully-believed path of structural reforms can significantly offset the adverse effect of Japan’s demographic headwinds — a declining and ageing population — on real GDP (by about 15 percent in the next 40 years), but would not boost inflation or contribute substantially to stabilizing public debt. Alternatively, implementation of a fully-credible structural reform program can contribute significantly to stabilizing public debt because of the resulting increase in inflation towards the Bank of Japan’s target, while achieving the same positive long-run effects on real GDP. If no reforms are implemented, severe demographic headwinds are expected to reduce Japan’s real GDP by over 25 percent in the next 40 years.
Keywords: Fiscal reforms; Demographic indicators; Labor market reforms; Product markets; Corporate sector; International trade; Public debt; Gross domestic product; Structural reforms, demographics, OLG models, Forecasting and Simulation, General, General, Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets (search for similar items in EconPapers)
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