In this paper, we investigate the impact of demographic uncertainty in a multi-regional general equilibrium, overlapping generations model (INGENUE 2). Specifically, we will consider the level of uncertainty in each of the ten major regions of the world, and their correlation across regions. In order to address these issues, we produce stochastic simulations of the world population for the ten regions until 2050. Then, we will analyse the economic consequences on a path by path basis over the period 2000-2050. These simulations allow us to assess the uncertainty induced into key macro-economic variables, the GDP growth rate and the world interest rate in particular, by uncertain future demographics. We show that the assumptions regarding interregional correlations of forecast errors are important in our model: they have a large impact on the uncertainty of the macroeconomic variables, and it appears that the macroeconomic adjustments can differ substantially if we consider independence or high correlation across the regions. In particular, the macroeconomic behaviour of the agents in the current account/saving problem differs significantly across regions according to the degree of interregional correlation.
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Paper provided by CEPII research center in its series Working Papers with number
2007-09.
Find related papers by JEL classification: C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
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