Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them?

Mariana Colacelli and Emilio Fernández Corugedo

No 2018/248, IMF Working Papers from International Monetary Fund

Abstract: 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: WP; product market reform; duality reform; inflation prospect; A. labor market; IMF staff's calculation; labor market duality reform; Structural reforms; demographics; OLG models; Japan; Japan calibration; nominal interest rate; GDP effect; Labor market reforms; Accommodative monetary policy; Commodity markets; Northern Europe (search for similar items in EconPapers)
Pages: 44
Date: 2018-11-28
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Citations: View citations in EconPapers (7)

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