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

Author/Editor:

Mariana Colacelli ; Emilio Fernández Corugedo

Publication Date:

November 28, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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. 18/248

Subject:

English

Publication Date:

November 28, 2018

ISBN/ISSN:

9781484384732/1018-5941

Stock No:

WPIEA2018248

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

44

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