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

By Mariana Colacelli, Emilio Fernández Corugedo

November 28, 2018

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Mariana Colacelli, and Emilio Fernández Corugedo. Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them?, (USA: International Monetary Fund, 2018) accessed November 21, 2024

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.

Subject: Accommodative monetary policy, Commodity markets, Financial markets, Labor, Labor market reforms, Macrostructural analysis, Monetary policy, Public debt, Structural reforms

Keywords: A. labor market, Accommodative monetary policy, Commodity markets, Demographics, Duality reform, GDP effect, IMF staff's calculation, Inflation prospect, Japan, Japan calibration, Labor market duality reform, Labor market reforms, Nominal interest rate, Northern Europe, OLG models, Product market reform, Structural reforms, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/248
Stock No:

WPIEA2018248
ISBN:

9781484384732
ISSN:

1018-5941

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