Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model
AbstractDue to a sharp decline in the fertility rate and a rapid increase in longevity, Japan's population aging is the furthest advanced in the world. In this study we explore the macroeconomic impact of population aging using a full-fledged overlapping generations model. Our model replicates well the time paths of Japan’s macroeconomic variables from the 1980s to the 2000s and yields future paths for these variables over a long horizon. We find that Japan’s population aging as a whole adversely affects GNP growth by dampening factor inputs. It also negatively impacts on GNP per capita, especially in the future, mainly due to the decline in the fraction of the population of working-age. For these findings, fertility rate decline plays a dominant role as it reduces both labor force and saver populations. The effects of increased longevity are expansionary, but relatively minor. Our simulations predict that the adverse effects will expand during the next few decades. In addition to closed economy simulations, we examine the consequences of population aging in a small open economy setting. In this case a decline in the domestic capital return encourages investment in foreign capital, mitigating the adverse effects of population aging on GNP.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42550.
Date of creation: Nov 2012
Date of revision:
Population Aging; Overlapping Generations Model; Capital Flow;
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-11-24 (Economics of Ageing)
- NEP-ALL-2012-11-24 (All new papers)
- NEP-DEM-2012-11-24 (Demographic Economics)
- NEP-DGE-2012-11-24 (Dynamic General Equilibrium)
- NEP-MAC-2012-11-24 (Macroeconomics)
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