Global Demographic Change and Japanese Macroeconomic Performance

The world is in the midst of a significant demographic transition with important implications for the macroeconomic performance of the global economy. This paper summarizes the key features of the current and projected future demographic change that are likely to have macroeconomic effects. It then develops and applies a new ten region DSGE model (the MSG3 model) incorporating demographic dynamics, to examine the impacts of projected global demographic change on the world economy from 2005 to 2100. The focus in this paper is on Japan and the effects of demographic change on recent Japanese macroeconomic performance as well as projected performance over the remainder of this century. A distinction is made between the effects on Japan of demographic change that occurs in Japan and the effects on Japan of the equally large demographic changes occurring in the rest of the world.