Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them?
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Summary:
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.
Series:
Working Paper No. 2018/248
Subject:
Accommodative monetary policy Commodity markets Financial markets Labor Labor market reforms Macrostructural analysis Monetary policy Public debt Structural reforms
English
Publication Date:
November 28, 2018
ISBN/ISSN:
9781484384732/1018-5941
Stock No:
WPIEA2018248
Pages:
44
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