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N° 261 |
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| November 2006 |
| The World Economy in the Long Run: Beware of Demographic Uncertainty! |
Juha Alho
Vladimir Borgy |
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| Economic decisions on long term issues are based upon uncertain demographic projections, for which it is crucial to assign probability. The
stochastic projection method allows to get such a probability distribution of future demographic paths. In this study, we consider the level of
uncertainty in each of the ten major regions of the world, and their correlation across regions. The method we use assumes that we should
expect forecast errors that are of the same order of magnitude as in the past. We produce stochastic simulations of the world population and
illustrate the economic consequences with simulations performed with the INGENUE 2 macroeconomic model. We show that the assumptions
regarding interregional correlations of forecast errors are important in a multi-regional framework: they have a large impact on the
uncertainty of the demographic and macroeconomic variables, and they could modify substantially the macroeconomic adjustments. |
Abstract |
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