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Modelling Global Demographic Change:Results For Japan

  • Warwick J. McKibbin

    ()

  • Jeremy Nguyen

    ()

In earlier papers (McKibbin and Nguyen (2001, (2002)) we introduced demographic features into the MSG3 model of the world economy, following the approach of Bryant and McKibbin (2001). In this paper we use the same theoretical technique to develop a series of models based on a consistent database from a simple two country symmetric theoretical model to the complete 4 country MSG3 model, which represents the empirical characteristics of Japan, United States, Rest of OECD and Rest of World. We explore a stylized decline in fertility similar to that experienced by Japan since the 1950 (exactly the same shock as the stylized shock used in Bryant (2004)). We first explore the properties of the theoretical model with both a global and a single country shock. This gives similar results to that found in the basic framework underlying the Bryant (2004) approach. We then move from the simplest fully optimizing framework to increasing add complexity to the model until we build a model of Japan. We explore the same shock across the models of increasing complexity in this paper and compare our results to the Bryant approach. We find that although the basic insights from the sequences of theoretical papers in the Brooking-ANU project continue to hold, the quantitative results change significantly as the model is adapted to have more characteristics of Japan. In a final section, we use the complete model to explore the likely impacts on Japan of the demographic change already experienced from 1970 and look to the likely changes to be experienced out to 2040.

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File URL: http://cbe.anu.edu.au/research/papers/camawpapers/Papers/2004/McKibbinPaper42004.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2004-03.

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Length: 77 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:een:camaaa:2004-03
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  1. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  3. Hamid Faruqee, 2003. "Debt, Deficits, and Age-specific Mortality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 300-312, April.
  4. Ronald Lee, 2003. "The Demographic Transition: Three Centuries of Fundamental Change," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 167-190, Fall.
  5. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  7. Hamid Faruqee & Douglas Laxton & Steven Symansky, 1997. "Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 374-382, September.
  8. Noriyuki Takayama & Yukinobu Kitamura & Hiroshi Yoshida, 1999. "Generational Accounting in Japan," NBER Chapters, in: Generational Accounting around the World, pages 447-470 National Bureau of Economic Research, Inc.
  9. Hayashi, Fumio, 1982. "The Permanent Income Hypothesis: Estimation and Testing by Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 895-916, October.
  10. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
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