European Parliament Library

Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them?, Mariana Colacelli, Emilio Fernández Corugedo

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
Table Of Contents
Cover -- Contents -- ABSTRACT -- I. INTRODUCTION -- II. THE PROPOSED STRUCTURAL REFORM PROGRAM -- A. Labor Market Reforms -- B. Corporate and Product Market Reforms -- C. International Trade Reforms -- III. GIMF CALIBRATION, ASSUMPTIONS, AND SCENARIOS -- A. GIMF Calibration -- B. Assumptions -- C. Four Scenarios -- IV. RESULTS -- A. "Plain Vanilla" Fully-Credible Reforms -- B. Not-Fully-Believed Reforms -- C. Fully-Credible Reforms with Monetary Accommodation -- D. Abenomics Redux: Fully-Credible Reforms with Monetary Accommodation and Public Debt Stabilization -- V. CONCLUSION -- References -- FIGURES -- 1. Impact of Demographic Projections -- 2. Credible Structural Reforms -- 3. GDP Effect of Credible Structural Reforms -- 4. GDP Effect of Credible Structural Reforms Under Full and Partial Labor Duality Reform -- 5. Not-Fully Believed Structural Reforms -- 6. Credible Structural Reforms Plus Monetary Policy Accommodation -- 7. Abenomics Redux Against Demographics -- 8. Public Debt Consolidation from Credible Structural Reforms and Consumption Tax Increase -- 9. Regular and Non-Regular Employment and Wages -- 10. Relative Wages of Non-Regular Workers, 2016 -- 11. Productivity Improvement Under Labor Market Duality Reform -- 12. Share of Intermediate Contracts Under Labor Market Duality Reform -- 13. Credible Labor Market Reforms -- 14. Credible Reforms in the Corporate Sector -- TABLES -- 1. Employment Rates and Share of Regular Workers, 2017 -- 2. Annualized Transition Probabilities in the Labor Market -- 3. "Great Ratios" and Other Shares (2012-16 average) -- 4. Structural Reform Package and GIMF Simulation Strategy -- APPENDICES -- A. Estimation of the Impact of Mitigating Duality: An Accounting Exercise -- B. GIMF Model Summary -- C. GIMF Calibration and Simulation Strategy
Literary Form
non fiction
Physical Description
1 online resource (45 pages)
Specific Material Designation
Form Of Item

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